GAO Says the CRA Does Not Apply to Fed Advisory on Dollar Token Activities
Commentary by Sebastian Souchet
The Government Accountability Office ("GAO") determined that the Congressional Review Act ("CRA") does not apply to a Fed advisory letter on state bank engagement in certain dollar token activities. (See related coverage.)
The GAO decision was a response to a request, by the Vice Chair of the House Financial Services and the Chair of the Subcommittee on Digital Assets, to determine if advisory Letter 23-8 ("Supervisory Nonobjection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens") is a "rule" under the CRA, which would thereby require proscribed procedures and congressional oversight.
The GAO decided that the advisory letter, which requires state member banks to "notify [the] FRB and receive written notification of supervisory nonobjection from FRB before engaging in the proposed activities," "meets the [Administrative Procedure Act] definition of a rule, but falls within CRA's exception for rules of agency organization, procedure, or practice that do not substantially affect the rights or obligations of non-agency parties." As a result, the GAO said the CRA does not apply to the advisory letter.
Commentary
The GAO's decision raises real policy questions regarding where the line is drawn as to when a rule of agency organization, procedure, or practice "substantially affects" the rights or obligations of non-agency parties. Is it really the case, as the GAO asserts, that the "FRB potentially following up with banks to seek additional information on their risk management practices does not substantially affect the banks' rights or obligations" (see p. 13)?
That said, the decision adds to the legal debate as to what constitutes a "rule" for purposes of the Administrative Procedure Act, and therefore for the purposes of the Congressional Review Act. (See generally The Impact of the CRA on Biden's Regulatory Agenda and the 2024 Elections (explaining that the CRA may be used by Congress to undo certain rules adopted by regulatory agencies)).
Notably, the GAO states that the FRB suggested SR 23-8 was not a "rule" for purposes of the APA because it was issued by FRB staff and not the Federal Reserve Board itself. As footnote 11 explains, the GAO has "recognized in prior decisions that agency actions published by less than the full agency can still constitute agency statements for purposes of APA, and, specifically, we have determined that SR letters constitute the FRB speaking as an agency notwithstanding that the letters are issued by FRB staff and not the [Federal Reserve Board]" (see p. 6). Further, in footnote 15 of the GAO's decision, the GAO addresses the FRB's assertion that SR 23-8 is not a rule under the CRA, in part, because the supervisory letter is "nonbinding, and the FRB will not initiate enforcement action based on noncompliance with supervisory guidance" (see p. 10). The GAO responds to the FRB's assertion stating that "based on CRA's legislative history and our prior decisions, that the nonbinding nature of SR Letters does not exclude them from the APA definition of a rule" (see p. 10).
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The Federal Reserve Board provided guidance to banking organizations on (i) supervision over "novel activities" and (ii) the process for state member banks to follow before engaging with dollar token or stablecoin activity.