Major Banking and Finance Associations Urge SEC to Amend SAB 121 on Digital Asset Custody

On February 14, 2024, the Banking Policy Institute (BPI), the American Bankers Association (ABA), the Financial Services Forum (Forum), and the Securities Industry and Financial Markets Association (SIFMA) jointly sent a letter to Chairman Gary Gensler. U.S. Securities and Exchange Commission (SEC). They are published in Staff Accounting Bulletin No. 31, March 2022. Requested the SEC to consider revising its objectives for Sec. 121 (SAB 121) to alleviate the challenges posed to U.S. banking organizations that store digital assets. As SAB 121 approaches two years since publication, these associations aim to align its provisions with recent policy developments and the practical experience of regulated banking organizations without compromising the original policy objective of improving investor information.

The Banking and Finance Association clarifies concerns and provides recommendations to improve SAB 121 to promote responsible innovation while ensuring investor protection and market integrity. They argue that the on-balance sheet requirements to secure cryptocurrency assets have made it impossible for banking organizations to effectively provide digital asset management at scale. These limitations, combined with the broad definition of “cryptoassets,” have hindered the development of DLT applications. cryptocurrency.

The letter cites the SEC’s recent approval of the Spot Bitcoin ETP and the proposed rule on the Safeguarding of Advisory Client Assets that addresses the custody of digital assets as developments warranting a reassessment of SAB 121. They highlight that the current regulations provide for digital asset custody services to non-bank organizations. A similar lack of regulatory oversight of financial institutions could potentially compromise the safety and stability of the financial system.

To alleviate these issues, the Association recommends narrowing the definition of “crypto assets” to exclude traditional financial assets recorded or transferred using DLT and exempt banking organizations from balance sheet treatment while maintaining disclosure requirements. They believe that this alignment will allow banking organizations to contribute to the digital asset ecosystem without unnecessary regulatory burden.

The Banking and Finance Association requested a meeting with the SEC to discuss proposed amendments to SAB 121, emphasizing its willingness to cooperate with the Commission. This highlights the importance of reflecting the objectives of SAB 121 in light of technological developments and policy developments since its publication.

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