SEC Maintains Stance On Crypto Custody Rule

According to Cointelegraph, the United States Securities and Exchange Commission (SEC) has reaffirmed its position on a rule that would limit crypto custody services for regulated financial firms. In a speech on September 9 at a banking conference, SEC chief accountant Paul Munter discussed the agency’s regulatory stance on accounting for crypto assets, particularly focusing on SEC Staff Accounting Bulletin No. 121 (SAB 121) and its applications. Munter stated that the SEC staff’s views in SAB 121 remain unchanged. He emphasized that, in the absence of specific mitigating facts and circumstances, the staff believes an entity should record a liability on its balance sheet to reflect its obligation to safeguard crypto-assets held for others. This stance was echoed by ETF Store President Nate Geraci, who noted in a September 10 post that the SEC appears firm on SAB 121, suggesting that the agency does not want to allow regulated financial institutions to custody crypto. Introduced in March 2022, SAB 121 outlines the SEC’s accounting guidelines for institutions looking to custody crypto assets. The rule has been contentious in political circles as it effectively prevents banks and regulated financial institutions from custodying crypto assets on behalf of clients. The SEC maintains that entities with such safeguarding arrangements should record a liability on their balance sheets for digital assets. Munter acknowledged that the SEC had reviewed various accounting scenarios involving blockchain and crypto assets, noting that not all arrangements fit the proposed guidelines set out in SAB 121. For instance, bank holding companies that safeguard crypto with bankruptcy protection may not need to record a liability on their balance sheets. Additionally, broker-dealers that facilitate crypto transactions but do not control the cryptographic keys may also not be required to record liabilities. Meanwhile, SEC Commissioner Hester Peirce has been vocally against the rule. She expressed her continued concern about the substance and process of SAB 121 in a recent post. The US House of Representatives voted to overturn the controversial SEC guidance in May, but President Biden vetoed the repeal the following month.