Potential Disapproval of SEC Staff Accounting Bulletin No. 121 Under the Congressional Review Act
INSIGHTi
Potential Disapproval of SEC Staff
Accounting Bulletin No. 121 Under the
Congressional Review Act
May 15, 2024
A growing number of firms are providing platforms for crypto transactions, which has prompted the
Securities and Exchange Commission (SEC) to consider how crypto exposures should be treated. Many
of these firms safeguard the platform users’ crypto assets and maintain crypto keys and other information
necessary to access crypto assets. This safeguarding service creates an obligation for the firm, and the
SEC’s Staff Accounting Bulletin No. 121 (SAB-121) seeks to provide clarity on how such a business
should account for that obligation.
SAB-121 went into effect in 2022 and states that, “as long as [the firm] is responsible for safeguarding the
crypto-assets held for its platform users, including maintaining the cryptographic key information
necessary to access the crypto-assets, the staff believes that [the firm] should present a liability on its
balance sheet to reflect its obligation to safeguard the crypto-assets held for its platform users” and that “it
would be appropriate for [the firm] to recognize an asset at the same time that it recognizes the
safeguarding liability, measured at initial recognition and each reporting date at the fair value of the
crypto-assets held for its platform users.”
SAB-121 has created concern over the scope and application of the SEC’s actions, and some Members of
Congress have expressed interest in disapproving it using the Congressional Review Act (CRA). This
Insight covers the actions Congress is considering under the CRA regarding SAB-121.
The Congressional Review Act (CRA) and SAB-121
The CRA provides Congress with a mechanism to review federal agency actions that meet the CRA’s
definition of rule. The CRA requires agencies to report the issuance of rules to Congress and provides
Congress with special fast-track procedures under which to consider legislation that overturns a rule. Like
regular legislation, a CRA joint resolution of disapproval becomes effective once both houses of Congress
pass the joint resolution and it is signed by the President or Congress overrides the President’s veto.
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The category of rules the CRA covers is broader than the category of rules that are subject to the
Administrative Procedure Act’s notice-and-comment requirements for federal rulemaking. As such, some
agency actions, such as guidance documents, that may not be subject to notice-and-comment rulemaking
procedures could still be considered rules under the CRA.
The SEC did not submit SAB-121 as a rule under the CRA, as it did not appear to believe it was covered.
However, pursuant to a practice that has developed in recent years, the Government Accountability Office
(GAO) was asked for its opinion on whether the bulletin should have been submitted. In its opinion, GAO
stated that the bulletin did meet the CRA’s definition of rule and should have been submitted.
That opinion allowed Congress to consider a joint resolution of disapproval using the CRA’s fast-track
procedures. Subsequently, Members of the House and Senate introduced H.J.Res. 109 and S.J.Res. 59,
respectively, in February 2024. The House passed H.J.Res. 109 on May 9 by a vote of 228-182. One
media outlet reported that the Senate may consider a CRA joint resolution of disapproval imminently.
President Biden has said he would veto the resolution.
Effects of Disapproval of Rules Under the CRA
Disapproval of a rule under the CRA has the immediate effect of overturning the rule in question, and it
also has a more long-term effect on the agency’s ability to issue similar rules. If a joint resolution of
disapproval is enacted, the CRA states that the “rule shall not take effect (or continue).” If the rule had
already gone into effect, like SAB-121, it must be treated as though it “had never taken effect.”
In addition, the CRA provides that if a joint resolution of disapproval is enacted, an agency may not issue
the rule in “substantially the same form” unless authorized in a subsequent law. The CRA does not define
the phrase substantially the same. Section 805 of the CRA also has a general prohibition on judicial
review, and no courts have weighed in on the meaning of this phrase.
To date, two rules have been reissued after having been struck down under the CRA. In both instances,
the agency looked primarily to the legislative history of the congressional disapproval itself to guide what
a reissued rule would look like. If S.J.Res. 59 or H.J.Res. 109 were to be enacted, the SEC may choose to
consider the legislative history of the disapproval in determining next steps, or it may also wish to
consider other factors. Notably, both of the reissued rules were required under statutory mandates.
The CRA is also silent on the question of who would make the determination as to whether a reissued
bulletin would be “substantially the same” as SAB-121. Due to the aforementioned prohibition on judicial
review, Congress and the agencies themselves, rather than a court, might be ultimately responsible for
making that determination. If the SEC were to reissue the bulletin, provided that it met the CRA’s
definition of rule, Congress could again use the CRA to overturn the bulletin on the basis that it was too
similar to the disapproved SAB-121 (or for any other reason). Congress could also use its legislative
powers in other ways, not just through the CRA, to respond to any subsequent SEC bulletin or other
action.
If SAB-121 is not overturned, the SEC will presumably continue to keep it in effect. Subsequently,
institutions providing custodial services for crypto asses on their platforms will be required to hold crypto
assets on their balance sheets. This, according to industry and regulators, represents a shift from
traditional custodial practices, could limit involvement of certain institutions, and may introduce new
costs or risks.
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Author Information
Maeve P. Carey
Paul Tierno
Specialist in Government Organization and Management Analyst in Financial Economics
Andrew P. Scott
Analyst in Financial Economics
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
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