According to Bloomberg, powerful interest groups are urging the Securities and Exchange Commission (SEC) to revise its existing guidance on crypto accounting. The regulator is already facing pressure from both Democrats and Republicans in Congress to repeal the guidance. The trade group coalition, which includes the Bank Policy Institute, the American Bankers Association, and the Securities Industry and Financial Markets Association, has requested key changes to the guidance.
The existing guidance directs public companies, including banks, to count crypto they custody as liabilities on their corporate balance sheets. This means banks have to set aside assets worth a similar amount to protect against losses to comply with their capital requirements. The groups argue that 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 SEC has said its accounting guidance is necessary because crypto assets pose unique risks and uncertainties compared to other assets banks hold for clients. The guidance in question, known as Staff Accounting Bulletin 121 (SAB 121), has resulted in banks being unable to crack into the crypto custodian business and recently missing out on providing that service for the newly-approved Bitcoin ETFs. The trade groups also pointed to other challenges they’ve faced because of the guidance, including a “chilling effect” on plans to use blockchain, or distributed ledger, technology for traditional assets.
On Thursday, 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.” The requests made in the Wednesday letter seek to find a path forward with the SEC, at a time when some US lawmakers are ramping up calls to repeal the bulletin outright. The idea has gained traction on Capitol Hill over the last several months following a report from the Congressional Research Service. Earlier this month, Reps. Tom Emmer and Patrick McHenry introduced legislation to repeal SAB 121, arguing that the SEC should not be making rules that affect bank custody.