The US Government Accountability Office (GAO) Finds SEC Violated Congressional Review Act
The US Government Accountability Office (GAO) has ruled that the US Securities and Exchange Commission (SEC) unlawfully instructed banks to include customers’ cryptocurrency holdings on their balance sheets. The GAO determined that the SEC’s Staff Accounting Bulletin 121 (bulletin) should have followed the due process for new rules outlined in the Congressional Review Act (CRA).
The GAO rejected the SEC’s argument that the bulletin offered “interpretive guidance” rather than a new rule. According to the GAO, the bulletin constituted an agency statement because it was published on the SEC’s public-facing website and reflected the views of SEC employees. Furthermore, it was deemed to be “of future effect” as it provided guidance on how certain entities should handle crypto assets in the future.
GAO Disputes SEC Mitigation
The CRA mandates that a government agency must submit a report on a proposed rule to the House of Representatives, Senate, and Comptroller General. It also provides a mechanism for Congress to challenge new rules with which it disagrees.
The GAO argued that the bulletin was subject to CRA requirements since it qualified as an agency statement and was published publicly by the SEC. Additionally, it contended that the bulletin contained policy preferences regarding crypto disclosure and custody, which fell within the SEC’s purview of enforcing disclosure requirements.
SEC Crypto Enforcement Blitz Hits Roadblocks
The GAO’s ruling has drawn attention to potential legal violations by the SEC during its crackdown on the crypto industry last year. Critics argue that issuing the bulletin after the peak of the crypto bull market suggests an unlawful attempt to suppress industry growth.
Pro-crypto SEC Commissioner Hester Peirce criticized the bulletin as an inefficient approach to crypto regulation. Ripple Labs’ legal head, Stuart Alderoty, commented that the ruling exposed the SEC’s transformation into a “Wild West,” echoing Chairman Gary Gensler’s own characterization of the crypto space.
Coinbase, a US-based exchange, has also raised concerns about agencies like the SEC unilaterally creating new rules on politically and economically significant matters. Traditional investment managers have criticized the SEC’s new product naming rules, questioning the added compliance burden for redefining traditional financial instruments.
Hot Take: GAO Ruling Highlights SEC’s Regulatory Overreach in Crypto Industry
The US Government Accountability Office’s ruling that the SEC violated the Congressional Review Act by issuing a bulletin without proper due process underscores concerns about the agency’s regulatory actions in the crypto industry. The GAO’s determination supports claims that the SEC unlawfully influenced banks to include customers’ cryptocurrency holdings on their balance sheets.
This ruling raises questions about the SEC’s handling of crypto regulation and its impact on industry growth. It also highlights the need for greater transparency and adherence to established regulatory procedures. Moving forward, it is crucial for regulatory agencies like the SEC to ensure compliance with applicable laws while fostering innovation and protecting investors in the evolving crypto landscape.
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