The U.S. Securities and Exchange Commission (SEC) was out of bounds when it issued its controversial “Staff Accounting Bulletin 121,” according to the Government Accountability Office (GAO).

The 2022 guidance, which the industry says threatens crypto investors’ ability to find safe harbors for their assets, should have been treated as a formal rule, the GAO concluded in a report issued on Tuesday. According to federal rulemaking procedures, that means the accounting bulletin should have gone through a different process, including submission to Congress before it went into effect.

SAB 121 holds that financial firms that hold customers’ crypto assets record those assets on their own balance sheets – requiring capital be maintained against them. The industry and Republican U.S. lawmakers have argued that it jeopardizes the willingness of regulated banks to act as crypto custodians, and it treats crypto holdings differently than other assets.

“We find that the bulletin does meet the definition of a rule under the Administrative Procedure Act and that no exception applies,” according to the finding of the GAO, an independent watchdog that works for the U.S. Congress. “Thus, the bulletin is subject to the Congressional Review Act’s submission requirement.”

It’s unclear what action, if any, the SEC needs to take in response to the GAO finding. Spokespeople for the SEC didn’t immediately respond to a request for comment.

“Today, the GAO recognized SAB 121 for what it is: regulation under the guise of staff guidance,” said Nathan McCauley, CEO and co-founder of Anchorage Digital Bank, in a statement. He said the bulletin “makes it economically impossible for SEC-reporting banks – some of the most trusted financial institutions worldwide – to custody digital assets at scale.”

SEC Commissioner Hester Peirce had also previously objected to the commission’s decision on the bulletin, saying it represented the SEC’s “scattershot and inefficient approach to crypto.”

The GAO noted the SEC argued that the accounting policy wasn’t treated as a rule because it is not an “agency statement” of “future effect.” Rulemaking at a federal agency such as the SEC includes several steps. An idea must first be proposed and opened to multiple stages of public comment before it can be finalized and submitted to Congress. The Congressional Review Act gives lawmakers a window of opportunity to reject a new federal rule.

Read More: U.S. Lawmakers Argue SEC Accounting Policy Undermines Safe Crypto Custody

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