The Plot Thickens
Hold onto your private keys, crypto enthusiasts! The SEC, under the watchful eye of Gary Gensler, has pulled a fast one on major banks in the U.S. with a sneaky accounting rule known as SAB 121. This rule is causing a major ruckus in the crypto-verse, as it’s basically telling banks they can’t offer crypto custody services. The catch? Banks would have to treat customer crypto assets as their own, a rule that doesn’t jive with how other assets are handled.
The Rule That’s Rocking the Boat
SAB 121 dropped like a bomb in March 2022. It’s got its claws in all entities that file financial info with the SEC under U.S. GAAP or IFRS and have a safeguarding obligation for crypto assets. The rule says that a safeguarding entity has to recognize a liability on its balance sheet and a corresponding asset under ASC 805, Business Combinations.
What’s the big deal? Well, if a bank wants to offer Bitcoin custody, it would have to treat the customer bitcoins as if they were the bank’s own stash. This means the bank would have to hold more US Dollars against the asset. This is like asking a valet to buy an insurance policy for every car they park. It’s a total buzzkill.
Banks Feeling the Burn
The Bank of New York Mellon, the OG of custodians, has said that this rule is a total deal-breaker for their crypto business. In their comment letter to the SEC, they made it clear that SAB 121 is like a giant roadblock for their custody offering. They thought they were playing by the same rules as everyone else, but the SEC changed the game.
The Crypto Crusaders
SAB 121 has ruffled some feathers in the political world. Senator Cynthia Lummis and Congressman Patrick McHenry have demanded answers, saying this guidance is like throwing a wrench in the gears of banks and credit unions that want to offer digital asset custody services.
Even within the SEC, there’s a rebellion brewing. Commissioner Hester Peirce, a known crypto ally, has publicly disagreed with the guidance in a public statement.
The Future of Crypto Custody Services
So, where does this leave crypto custody services in the U.S.? With SAB 121 in play, major banks are facing a major hurdle. The rule has been slammed for potentially sidelining some of the most trusted financial institutions from the crypto party.
As the rollercoaster continues, one thing’s for sure: the rules of the game are constantly changing. The challenge is to find a balance that lets innovation thrive while keeping the crypto-verse safe and secure. Hodl on tight, it’s going to be a wild ride!