SEC Clears Path for Banks to Enter Crypto Custody Business
The U.S. Securities and Exchange Commission (SEC) has scrapped a controversial accounting rule, opening new opportunities for banks to offer crypto custody services. Previously, the rule required companies holding crypto assets for customers to list them as liabilities on their balance sheets, discouraging traditional financial institutions from diving into the crypto space.
This change, marked by the removal of Staff Accounting Bulletin (SAB) 121, is seen as a major step forward for the crypto industry. Experts believe it will encourage traditional banks to expand their digital asset services beyond just Bitcoin and Ethereum.
Expanding Crypto Services
Steven McClurg, CEO of Canary Capital, highlighted that established custodians like US Bank and BNY Mellon already handle fund administration and cash custody for crypto ETFs. With the removal of SAB 121, these banks and others could broaden their offerings to include more advanced crypto services globally. McClurg also predicts that banks might acquire crypto-native firms like Gemini or Anchorage as the industry evolves.
What’s Next for Banks and Crypto Custody?
While this regulatory shift is a big milestone, it won’t result in immediate changes. McClurg noted that most banks will initially focus on Bitcoin and Ethereum. Other crypto assets, like XRP, Litecoin, or HBAR, may not see bank custody support right away.
The transition will take time as banks work on upgrading their technological systems to handle digital assets securely. However, mergers and acquisitions could speed up this process. Some crypto ETF issuers might also shift their products to bank custody for better convenience and trust.
New Accounting Guidelines in Place
The SEC has introduced new accounting guidance under Staff Accounting Bulletin (SAB) 122, which requires companies to assess crypto custody obligations using standard accounting practices, such as U.S. GAAP and IFRS. These changes will officially take effect for fiscal years starting after December 15, 2024, although firms can adopt them earlier.
The SEC has emphasized that companies must still provide clear and transparent disclosures about their crypto custody responsibilities under existing laws.
A Legislative Push for Change
This move follows efforts by Congress to address the accounting rules, including a bipartisan bill to repeal SAB 121. The bill gained support but was ultimately vetoed by President Joe Biden.
The SEC’s decision signals a new era for the crypto industry, with traditional banks now better positioned to embrace digital assets and expand their crypto custody services.
