US Congress and GAO Challenge SEC’s Crypto Accounting Rule
In Brief
Government Accountability Office (GAO) has declared that a rule issued by the U.S. SEC – SAB 121, to be reviewed by Congress.
The Government Accountability Office (GAO) has declared the U.S. Securities and Exchange Commission’s (SEC) “Staff Accounting Bulletin 121” (SAB 121) rule to be in violation of the Congressional Review Act (CRA).
The GAO is an independent federal watchdog that works on behalf of the U.S. Congress, and its finding has set the stage for a potentially high-stakes showdown between regulators, lawmakers, and the cryptocurrency industry.
Issued in March 2022, SAB 121 mandates that financial firms holding customers’ cryptocurrency assets record them as liabilities on their balance sheets, thereby necessitating capital to be maintained against them.
According to the SEC, its intention was to address crypto-specific risks, however, critics have argued that it imposes an undue burden on companies and may distort financial disclosures.
It contends that SAB 121 should have undergone congressional review before taking effect.
Under the CRA, enacted in 1996, Congress can oversee agency rulemaking and potentially disapprove of rules within a 60-day window. The GAO’s determination that SAB 121 qualifies as a “rule” under the Administrative Procedure Act (APA) and therefore should have been subject to the CRA, has ignited a contentious debate.
Crypto Industry Reacts
The cryptocurrency industry reacted swiftly to the GAO’s finding, with key figures expressing strong opposition to SAB 121.
Venture Fund Variant’s chief legal officer, Jake Chervinsky, characterized the SEC’s actions as breaking the law and urged an immediate withdrawal of SAB 121.
Many in the crypto sector view SAB 121 as a form of regulation masquerading as staff guidance, making it economically challenging for SEC-reporting banks to offer custodial services for digital assets at scale.
Adding fuel to the fire, a bipartisan group led by U.S. Congressman Mike Flood has introduced the Uniform Treatment of Custodial Assets Act. This legislation seeks to prohibit federal agencies from requiring assets held in custody to be included as liabilities. Congressman Flood argued that SAB 121 might prevent banks from providing custodial services to digital asset investors.
A Critical Juncture in Cryptocurrency Regulation
The implications of the GAO’s finding are significant. Now that SAB 121 has been declared a “rule” for CRA purposes, it will likely undergo congressional review. The mechanics of this review process are yet to be determined, but one thing is clear: this period presents a critical juncture for regulatory debates surrounding the cryptocurrency industry.
Lobbyists from all sides are expected to vie for the attention of lawmakers as the SEC grapples with the implications of the GAO’s opinion.
In response to the GAO’s determination, the SEC maintains that the status of SAB 121 remains unchanged and that it remains a nonbinding SEC policy. SEC Commissioner Hester Pierce, a frequent critic of the commission’s approach to crypto, had previously voiced concerns about the bulletin, characterizing it as a “scattershot and inefficient approach to crypto.”
As the crypto industry, regulators, and lawmakers brace for what could be a pivotal moment in the ongoing debate over cryptocurrency regulation, the stakes are undeniably high, and the outcome remains uncertain.
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About The Author
Kumar is an experienced Tech Journalist with a specialization in the dynamic intersections of AI/ML, marketing technology, and emerging fields such as crypto, blockchain, and NFTs. With over 3 years of experience in the industry, Kumar has established a proven track record in crafting compelling narratives, conducting insightful interviews, and delivering comprehensive insights. Kumar's expertise lies in producing high-impact content, including articles, reports, and research publications for prominent industry platforms. With a unique skill set that combines technical knowledge and storytelling, Kumar excels at communicating complex technological concepts to diverse audiences in a clear and engaging manner.
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Kumar is an experienced Tech Journalist with a specialization in the dynamic intersections of AI/ML, marketing technology, and emerging fields such as crypto, blockchain, and NFTs. With over 3 years of experience in the industry, Kumar has established a proven track record in crafting compelling narratives, conducting insightful interviews, and delivering comprehensive insights. Kumar's expertise lies in producing high-impact content, including articles, reports, and research publications for prominent industry platforms. With a unique skill set that combines technical knowledge and storytelling, Kumar excels at communicating complex technological concepts to diverse audiences in a clear and engaging manner.
