The U.S. Securities and Exchange Commission (SEC) has issued new guidance that permits banks and brokerages to exclude their customers’ cryptocurrency holdings from their balance sheets, provided they implement measures to mitigate associated risks. This represents a significant shift from the SEC’s previous stance aimed at enhancing transparency and investor protection.
What Is SAB 121 and Why Is It Important?
In 2022, the SEC issued Staff Accounting Bulletin 121 (SAB 121), which required companies to report customers’ crypto holdings on their balance sheets to inform investors of potential technological and legal risks. This came before the collapse of the major crypto exchange FTX.
Lobbying Efforts Against SAB 121
Banks and financial industry trade groups have lobbied Congress to rescind SAB 121, arguing that it unfairly inflated balance sheets and triggered capital requirements, making it more costly and challenging to offer crypto services. Despite these efforts, the House recently failed to override a presidential veto on a measure to revoke SAB 121.
SEC Ends BUSD Investigation, Paxos Finds Relief After Year-Long ProbePresidential Veto of Joint Resolution 109
On July 11, 2024, the U.S. House of Representatives voted on Joint Resolution 109, which sought to invalidate SAB 121. The resolution was vetoed by President Joe Biden, who defended the SEC’s accounting policy. The House vote resulted in 228 in favor of overturning the veto and 184 against, falling short of the two-thirds majority needed to override the president’s decision. This outcome reflects the contentious nature of SAB 121 and the division within Congress regarding crypto regulation.
How Are Banks Adapting to New SEC Guidance?
Several large banks have negotiated with the SEC to bypass balance sheet reporting by ensuring customer asset protection in cases of bankruptcy or failure and implementing robust internal safeguards. These adjustments allow institutions to offer crypto services without inflating their balance sheets, thereby avoiding stricter capital requirements.
What Does This Mean for American Crypto Holders?
The SEC’s new stance potentially expands the range of companies that can offer crypto services, providing more options for American crypto holders. Financial institutions are increasingly interested in entering the crypto market, especially with the approval of spot Bitcoin products.
