Apparently, the US Securities and Exchange Commission (SEC) cannot ask banks to include crypto holdings of their customers in their financial statements. The US Government Accountability Office (GAO) delivered this shocking verdict which ignited a debate over SEC’s interpretation of securities and exchange laws.
The GAO’s verdict
The GAO’s ruling revolves around the Staff Accounting Bulletin 121 (bulletin). They claim that it was issued by the SEC without following the proper procedures mentioned in the Congressional Review Act (CRA).
The GAO firmly overruled the SEC’s argument saying that the bulletin was not a new rule but only an “interpretive guidance.” GAO believes that the bulletin had future implications. It laid outlines for firms to handle custody of crypto for their clients.
The SEC intended the Bulletin’s guidance to apply prospectively to covered entities’ future accounting and disclosure practices
US Government Accountability Office (GAO).
Any government agency must submit a report on proposed rules to the House of Representatives, the Senate, and the Comptroller General as per the Congressional Review Act. It further allows Congress to challenge and overturn new rules if they don’t fall in line with them.
The GAO explicitly said that the SEC’s bulletin was an agency statement since it was published on the its website for the public. They said that the website reflects the views of SEC and its employees. The bulletin also contained policy which revealed the SEC’s stance on crypto disclosure and custody.
SEC under fire
The GAO’s ruling has intensified the criticism of SEC’s regulatory approach towards the crypto sector. The SEC’s issued the bulletin in March 2022, just after the peak of the crypto bull market. It raised concerns about the agency’s intentions and tactics.
Hester Peirce, a pro-crypto SEC Commissioner, also criticised the bulletin saying it was a “scattershot and inefficient” approach to regulate crypto.
The GAO’s verdict has far-reaching implications when it comes to crypto regulation. This decision has made it mandatory for the bulletin to comply with the CRA’s submission requirements. It will be subject to further scrutiny and potential revisions.
This ruling serves as a stark reminder of the complexities and controversies surrounding its regulation. It has left both enthusiasts and critics of the sector to closely watch the developments in the SEC’s approach towards regulating crypto.