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Financial Services Law Insights and Observations

SEC’s SAB 121 should be subject to congressional review, says GAO

Securities GAO CRA Congress

Securities

On October 31, the GAO opined that the SEC’s Staff Accounting Bulletin 121 (SAB 121) is a rule, and thus the SEC was required to submit it for congressional review. SAB 121 describes how SEC staff would expect entities to account for and disclose their custodial obligations for engaging in crypto-asset services, noting that crypto companies may have to present such obligations as a liability on their balance sheets. The GAO found that SAB 121 provides interpretive guidance, but the SEC failed to submit a report as required under the Congressional Review Act (CRA) before a rule can take effect.

The GAO’s opinion notes that the SEC maintains a different position than the GAO on the nature of SAB 121, arguing that SAB 121 is not a rule (and thus subject to CRA review), but instead is “guidance” indicating “how the Office of the Chief Accountant and the Division of Corporation Finance would recommend that the agency act,” and is not an agency statement from the full Commission. However, the GAO’s found that “[SAB 121] is a statement made by the SEC,” and that “a statement issued by a subset of the agency may still constitute an agency statement for CRA purposes.”