The SEC's Crypto Accounting Rule Faces Scrutiny from the US Congress and GAO
In Brief
The GAO has stated that the U.S. SEC's SAB 121 should be subjected to congressional review.
The Government Accountability Office (GAO) has declared the U.S. Securities and Exchange Commission (SEC) The 'Staff Accounting Bulletin 121' (SAB 121) has been found potentially in violation of the Congressional Review Act (CRA).
This independent federal watchdog, the GAO, serves Congress, and its findings could spark a significant confrontation between regulatory bodies, legislators, and the cryptocurrency sector.
Issued in March 2022, SAB 121 The bulletin requires financial institutions that manage clients' cryptocurrency holdings to classify these assets as liabilities, demanding that sufficient capital reserves be in place to back them.
Although the SEC claims it aims to mitigate risks specific to the crypto industry, detractors argue that its requirements create excessive pressure on companies and might lead to misleading financial reports.
The GAO insists that SAB 121 ought to have gone through a congressional examination prior to its implementation.
The CRA, which came into effect in 1996, grants Congress oversight over agency regulations and allows for potential disapproval of these rules within a period of 60 days. The GAO's classification of SAB 121 as a 'rule' under the Administrative Procedure Act (APA) has caused a heated debate.
Crypto Industry Reacts
In response to the GAO’s ruling, the cryptocurrency community reacted quickly, with many prominent voices expressing strong dissent regarding SAB 121.
Jake Chervinsky, the chief legal officer of Venture Fund Variant, criticized the SEC's actions as unlawful and called for an immediate repeal of SAB 121.
Within the cryptocurrency realm, many perceive SAB 121 as regulatory overreach disguised as advisory guidance, complicating matters for banks accountable to the SEC who wish to offer custodial services. digital assets at scale.
Adding to the discourse, a bipartisan coalition led by Congressman Mike Flood has proposed the Uniform Treatment of Custodial Assets Act. This bill aspires to prohibit federal agencies from mandating that custodied assets be treated as liabilities. Flood has emphasized that SAB 121 could hinder banks from supplying custodial options to investors in digital assets.
A Pivotal Moment for Cryptocurrency Governance
The ramifications of the GAO's conclusion are substantial. With SAB 121 labeled a 'rule' concerning the CRA, it is poised for congressional examination. The specifics of this review process are still undetermined, but it’s undeniably a crucial time for the ongoing discussions about cryptocurrency oversight.
Expect lobbyists from all perspectives to engage with lawmakers as the SEC considers the ramifications of the GAO's findings.
Despite the GAO’s assessment, the SEC asserts that SAB 121's status remains unchanged as a nonbinding policy set forth by the commission. SEC Commissioner Hester Pierce, known for her critical view of the SEC's crypto strategies, has previously expressed her apprehensions about the bulletin, describing it as haphazard and ineffective.
As stakeholders in the crypto industry, regulatory authorities, and lawmakers prepare for what may become a landmark moment in the ongoing regulatory discussions, the stakes are undeniably elevated, and the final outcome is still shrouded in uncertainty.
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