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The U.S. Securities and Exchange Commission (SEC) is under scrutiny for its handling of the contentious “Staff Accounting Bulletin 121” (SAB 121), with the Government Accountability Office (GAO) finding fault in the regulatory process.
SAB 121, released in 2022, stipulates that banks must include customers’ crypto assets on their balance sheets, necessitating capital reserves against these holdings. While the SEC considered this a guidance document, the GAO contends it should have been treated as an official rule, requiring Congressional review before implementation.
The GAO’s report, released on Tuesday, argues that SAB 121 qualifies as a rule under the Administrative Procedure Act and should be subject to the Congressional Review Act (CRA). Under the CRA, Congress has the opportunity to reject new federal rules.
In response, the SEC clarified that the GAO’s conclusion primarily impacts how SAB 121 is interpreted under the CRA and does not alter the bulletin’s status as nonbinding SEC policy.
Concerns of the Crypto Industry
The crypto industry and Republican lawmakers have expressed concerns that SAB 121 could discourage regulated banks from providing crypto custodial services and treats crypto assets differently from traditional holdings.
Reactions from Industry Leaders
Nathan McCauley, CEO and co-founder of Anchorage Digital Bank, welcomed the GAO’s assessment, stating, “Today, the GAO recognized SAB 121 for what it is: regulation under the guise of staff guidance.” He emphasized that the bulletin could hinder SEC-reporting banks’ ability to offer digital asset custody services on a large scale.
SEC Commissioner Hester Peirce had previously criticized the commission’s handling of SAB 121, characterizing it as an inefficient approach to crypto regulation.
The SEC had argued that SAB 121 was not an “agency statement” of “future effect,” which contributed to its classification as guidance rather than a formal rule. In the rulemaking process, a federal agency, such as the SEC, must propose, open for public comment, and finalize an idea before submitting it to Congress for potential rejection.
As a result of the GAO’s findings, SAB 121 is expected to be submitted for Congressional review. The mechanics of this review process are yet to be determined, but it is anticipated that lawmakers will have until December 31 to pass a resolution of disapproval if they wish to invalidate the rule.
The crypto industry views this development as a significant challenge for the SEC, as it reopens discussions about the regulatory framework for crypto assets and their treatment by financial institutions.
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