SEC ‘dug in’ on bank crypto custody rule as agency’s stance ‘unchanged’

The United States Securities and Exchange Commission has seemingly “dug in” on its stance on a rule that would curtail crypto custody services for regulated financial firms.

In a Sept. 9 address to a banking conference, SEC Chief Accountant Paul Munter discussed the agency’s regulatory stance on accounting for crypto assets, focusing on SEC Staff Accounting Bulletin No. 121 (SAB 121) and its applications.

“The [SEC] staff’s views in SAB 121 remain unchanged,” he said. 

“Absent particular mitigating facts and circumstances, the staff believes an entity should record a liability on its balance sheet to reflect its obligation to safeguard crypto-assets held for others,” Munter added.

ETF Store President Nate Geraci said in a Sept. 10 X post that the SEC “appears dug in” on SAB 121.

“They simply don’t want to provide regulated financial institutions with the ability to custody crypto,” he added.

Source: Nate Geraci  

The SEC introduced SAB 121 in March 2022, which outlined its accounting guidelines for institutions looking to custody crypto assets.

The rule was divisive in political circles as it virtually prevented banks and regulated financial institutions from custodying crypto assets on behalf of clients.

The SEC believes that entities with custody arrangements should record a liability on their balance sheets for digital assets.

Munter said the SEC had reviewed various accounting scenarios involving blockchain and crypto assets and acknowledged that not all arrangements fit the proposed guidelines set out in SAB 121. 

Bank holding companies that safeguard crypto with bankruptcy protection may not need to record a liability on their balance sheets, he said. 

Additionally, “broker-dealers” that facilitate crypto transactions but do control the cryptographic keys may also not be required to record liabilities. 

Related: Stablecoin act gives Congress alternative to overriding Biden’s SAB 121 veto

Meanwhile, SEC Commissioner Hester Peirce, who has been vocally against the rule, said on X that she continued “to be concerned about the SAB 121 substance and process.” 

Source: Hester Peirce  

The US House of Representatives voted to overturn controversial SEC guidance in May. However, President Joe Biden vetoed the repeal the following month. 

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