A coalition of financial groups has requested modifications to the Securities and Exchange Commission (SEC')s Staff Accounting Bulletin No. 121, offering interpretive guidance on digital assets, because the guidance makes it more expensive for U.S. banks to hold digital assets for their customers, Accounting Today reported.
The trade group coalition, which includes the Bank Policy Institute, the American Bankers Association, the Securities Industry and Financial Markets Association, and Financial Services Forum, requested certain changes to the guidance in a letter to the SEC last week.
The guidance directs public companies, including banks, to count crypto that they hold in custody as liabilities on their corporate balance sheets, meaning that banks have to set aside assets worth a similar amount to protect against losses to comply with their capital requirements.
In its letter, the groups asked the SEC to exclude certain assets from what counts under the broad crypto umbrella, including any traditional assets recorded or transferred using blockchain networks, as well as any tokens underlying SEC-approved products. They also asked the SEC to exempt regulated lenders from the current balance sheet requirement while maintaining the requirement that firms disclose their crypto activities in financial statements.
"If regulated banking organizations are effectively precluded from providing digital asset safeguarding services at scale, investors and customers, and ultimately the financial system, will be worse off," the organizations wrote.
Banks have objected to the 2022 guidance because, they claim, it makes it too costly to scale up services to hold digital assets on behalf of customers. As a result, banks have been unable to crack into the crypto custodian business and recently missed out on providing that service for the newly-approved Bitcoin exchange-traded funds.
A spokesperson for the SEC described SAB 121 as “non-binding staff guidance" that, if followed, "enhances important disclosure to investors in firms that safeguard crypto assets for others," Accounting Today reported.
Earlier this month, three lawmakers—Reps. Mike Flood (R-Neb.) and Wiley Nickel (D-N.C.), and Sen. Cynthia Lummis (R-Wyo.)—introduced resolutions in their respective chambers to repeal the SEC's guidance and said that the SEC had overstepped its authority.
"The SEC should not be making rules that affect bank custody," Flood said in an interview. "That's a job for our prudential regulators."
State Street Corp., a bank holding company, has plans to launch a crypto custody platform pending regulatory approval. Donna Milrod, it chief product officer, said in a statement that while State Street is encouraged by Congress's efforts, it was critical for the SEC to work collectively alongside banks and accounting firms to "at minimum, properly modify SAB 121 to remove the balance sheet treatment for prudentially regulated banks."