SEC Accounting Regulation Threatens Crypto Custody
The Security and Exchange Commission’s accounting bulletin 121 (SAB 121) has mandated companies, including banks, to hold crypto assets for clients as a liability on their balance sheets, hindering large banks from providing efficient crypto custody services.
Despite efforts by both the House and Senate to nullify this guidance through a bipartisan Congressional Review Act (CRA) resolution, the Biden Administration vetoed it in May.
Subsequently, a House vote to overturn the veto fell short of the required two-thirds majority on July 11, as reported by the American Banker.
Pro-Crypto Advocates Push Back
Chairman of the House Financial Services Committee, Patrick McHenry, expressed disappointment at the veto, emphasizing that it undermines the progress made in digital asset legislation.
“That is a mandate from the Americans we represent. Despite all of the recent progress and bipartisan agreement, President Biden vetoed the first digital-asset-specific legislation to ever pass the House and Senate.”
The American Bankers Association, Bank Policy Institute, Financial Services Forum, and the Securities Industry and Financial Markets Association collectively voiced concerns about SAB 121’s impact on the industry’s ability to offer secure custody of digital assets.
However, the SEC has now introduced a way for banks and brokerages to avoid disclosing customers’ crypto holdings on their balance sheets, deviating from the strict enforcement of SAB 121 in the past, as highlighted by Bloomberg.
Flexibility in Reporting Requirements
Bloomberg’s Amanda Iacone noted that financial institutions can circumvent the contentious accounting rule by implementing measures to mitigate risks related to crypto assets, such as safeguarding customer assets in case of bankruptcy.
Furthermore, some major banks have engaged with the SEC and received approval to exempt themselves from balance sheet reporting under specific conditions, signaling a shift towards addressing security and legal risks associated with crypto holdings.
This more lenient approach by the SEC could pave the way for an expansion of crypto custody services by banks and companies, providing more options for crypto users in the U.S.
SEC Stance on SAB 121
Despite the recent developments, including the SEC’s softening on enforcement and granting exemptions, the original guidance of SAB 121 remains in effect post the unsuccessful attempt to reverse Biden’s veto in the House.
Hot Take: The Future of Crypto Custody Services
While challenges persist with regulatory frameworks like SAB 121 impacting the provision of crypto custody services, recent developments suggest a possible shift towards a more accommodating stance by regulatory bodies. The evolving landscape could potentially lead to increased accessibility and security for crypto holders in the United States.
By
By
