Influential Trade Groups Call for SEC to Revise Crypto Accounting Rules
Amidst the recent surge in cryptocurrency prices, which pushed the total crypto market capitalization to $1.93 trillion, trade groups including the Bank Policy Institute and the American Bankers Association are urging the US Securities and Exchange Commission (SEC) to revise accounting guidance that imposes higher costs on US banks for holding digital assets on behalf of their customers.
Trade Groups Request Changes to Existing Guidance
The current guidance requires public companies, including banks, to treat cryptocurrencies held in custody as liabilities on their balance sheets. The trade groups have requested the SEC to exclude certain assets from being classified under the broad crypto umbrella and grant regulated lenders an exemption from the balance sheet requirement while maintaining disclosure of crypto activities.
SEC Defends Accounting Guidance
The SEC has defended its accounting guidance, citing the unique risks and uncertainties posed by cryptocurrencies compared to other assets held by banks.
Criticism and Challenges Faced by Banks
Banks have criticized the specific guidance known as Staff Accounting Bulletin No. 121 since its publication in 2022, arguing that it limits their ability to expand digital asset services due to associated high costs. The trade groups also highlighted challenges resulting from the guidance, including a chilling effect on plans to utilize blockchain technology for traditional assets.
Efforts to Repeal the Guidance
Lawmakers have introduced resolutions in both the House Financial Services Committee and Senate aiming to remove the SEC’s authority in making rules that impact bank custody. The outcome remains uncertain and depends on garnering sufficient support.
Potential Regulatory Changes for Banks Holding Digital Assets
The collective efforts of trade groups, lawmakers, and industry stakeholders could lead to regulatory changes that alleviate the burden on banks holding digital assets, facilitating their participation in the cryptocurrency landscape.
Growing Institutional Interest in Cryptocurrencies
The recent involvement of US institutions reflects a growing interest in adopting and investing in cryptocurrencies, particularly Bitcoin. This institutional involvement has contributed to the success of Bitcoin spot ETFs, which gained regulatory approval a month ago.
Hot Take: Pressure Mounts for SEC to Revise Crypto Accounting Rules
With influential trade groups and lawmakers calling for revisions to SEC accounting guidance, the pressure is mounting for regulatory changes that would benefit banks holding digital assets. The existing guidance has been criticized for its limitations and high costs, hindering the expansion of digital asset services. While the outcome remains uncertain, the collective efforts of industry stakeholders may lead to a more favorable environment for banks and increased participation in the evolving cryptocurrency landscape.
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