U.S. SEC Under Fire: GAO Calls Out Missteps on Crypto Accounting Bulletin!

The Heart of the Controversy

The SEC’s Staff Accounting Bulletin 121 asserts that banks should record customers’ crypto assets on their own balance sheets. However, GAO insists that this should have been classified as a rule, rather than mere guidance, and subjected to Congressional review.

GAO’s Rebuke

The Government Accountability Office claims the SEC erred by not forwarding SAB 121 to Congress, a necessary step for an official rule.

SEC’s Defense

While acknowledging GAO’s conclusion, the SEC emphasized that this only pertains to the bulletin’s interpretation under the Congressional Review Act, leaving the policy’s status untouched.

Bridging the Gap Between Guidance and Rule

SAB 121’s 2022 release was met with industry backlash, fearing it may jeopardize crypto investors’ safety. GAO believes the SEC should have followed the federal rulemaking procedure, including a Congressional review prior to its enactment.

Repercussions on Financial Institutions

SAB 121 mandates that financial entities recording clients’ crypto assets on their balance sheets maintain capital against them. This, critics say, may dissuade banks from acting as crypto custodians and sets a double standard for crypto assets.

GAO’s Firm Stance

According to GAO, the bulletin matches the “rule” definition under the Administrative Procedure Act, with no exceptions. This makes it a candidate for the Congressional Review Act’s submission requirement.

Potential Congressional Review

With the bulletin likely facing a Congressional review, lawmakers might get the chance to nix it under the Congressional Review Act.

Crypto Community’s Response

Many in the crypto realm view GAO’s critique as a setback for the SEC. Nathan McCauley, CEO of Anchorage Digital Bank, labeled the bulletin as masked regulation that hinders global banks from effectively handling digital assets.

SEC Commissioner’s Objections

Hester Peirce, an SEC Commissioner, had previously criticized the bulletin, pinpointing the SEC’s inconsistent and inefficient crypto strategy.

SEC’s Justification and Future Steps

The SEC maintained that its policy wasn’t a rule as it isn’t an “agency statement” of “future effect.” The GAO disputes this. The ongoing discussion suggests that the rule may face a “vote of disapproval” by the end of the year.

Keywords: U.S. SEC, GAO, Crypto Accounting Bulletin, SAB 121, Congressional Review, Crypto Assets, Rulemaking, Financial Institutions, Crypto Industry