US SEC Maintains Strict Stance on Crypto Custody Rules for Banks

• The US SEC is keeping its strict rules on how banks handle cryptocurrency assets.
• SEC Chief Accountant Paul Munter confirmed that the rules requiring firms to list crypto asset liabilities on their balance sheets are still in effect.

The U.S. Securities and Exchange Commission (SEC) has reinforced its strict stance on limiting crypto custody services for banks and regulated financial firms.

In a recent talk at a banking conference on September 9, SEC Chief Accountant Paul Munter reaffirmed the agency’s firm position on rules governing the custody of cryptocurrency assets by regulated financial institutions. The focus was on SEC Staff Accounting Bulletin No. 121 (SAB 121), which outlines accounting guidelines for these institutions. This bulletin introduced back in March 2022, lays out accounting rules for financial firms looking to safeguard cryptocurrencies.

Further, Munter emphasized that unless specific mitigating factors are present, financial entities must record a liability on their balance sheets to reflect their obligation to protect crypto assets held for others. This position remains unchanged, according to the release.

Concerns Over SEC’s Crypto Custody Rules

This ruling has sparked significant debate, especially since it limits the ability of regulated banks and financial institutions to hold cryptocurrencies for their clients. Critics have raised concerns that this rule could prevent mainstream financial companies from entering the crypto space. 

Nate Geraci, President of the ETF Store, echoed this sentiment in a Twitter post, stating that the SEC appears to be standing its ground on these regulations. This stance is making it challenging for traditional financial institutions to offer crypto custody services.

However, Munter acknowledged that not all scenarios fit the SAB 121 guidelines. For example, bank-holding companies that offer bankruptcy protection for crypto assets may not need to record such liabilities. Similarly, broker-dealers facilitating crypto transactions without control over the cryptographic keys might not be subject to these requirements.

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