The U.S. House of Representatives failed on Thursday (11th) to overturn President Joe Biden’s veto of the repeal of the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin No. 121 (SAB 121), making the controversial accounting Guidance remains.
SAB 121 requires financial institutions that hold customers’ cryptocurrencies to record them as liabilities on their balance sheets. Critics of the guidance say it will make it very difficult for financial institutions such as banks to work with cryptocurrency companies.
However, according to Bloomberg, the SEC has opened a way for banks and brokerage firms to avoid reporting clients’ cryptocurrency holdings on their balance sheets, but companies must offset the risks posed by these assets to bypass the SAB. 121.
SEC staff have begun issuing guidance that certain arrangements may not require reporting liabilities on the balance sheet under accounting guidance issued two years ago, a source familiar with the SEC's practices said.
Starting in 2023, several large banks that consulted with SEC staff were given the green light to bypass balance sheet reporting on the condition that they ensure their customers' assets are protected in the event of a bankruptcy or failure. Additional steps, such as internal safeguards aimed at better protecting these assets, will address the legal risks associated with this emerging asset class, sources said.
Regulators believe the guidance is working and some companies have made adjustments to deal with the threat posed to investors by hackers and corporate failures, sources said. Sources also said banks successfully argued during closed-door discussions with SEC staff that wallets and Bitcoin spot exchange-traded products (ETPs) should be excluded from the cryptocurrency guidance.
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