Advocacy Groups Seek SEC Rule Changes for Bank Crypto Holdings

A collective of financial advocacy groups is pushing for the Securities and Exchange Commission (SEC) to revise the existing accounting standards that presently put a strain on American banks handling cryptocurrencies on behalf of their customers. This initiative is backed by bipartisan support from members of Congress, who are also in favor of overturning these rules. Among those voicing their concerns, the American Bankers Association and the Securities Industry and Financial Markets Association stand out. They have taken a significant step by sending a formal request to the SEC, as reported by Bloomberg, seeking adjustments to the current regulatory framework.

The crux of the issue lies in the way public financial institutions, like banks, are required to account for the cryptocurrencies they hold in custody. According to the rules in force, these assets must be recorded as liabilities. This necessitates banks to set aside an equal amount of assets to cover any potential losses and to comply with capital adequacy norms.

The groups are advocating for a nuanced approach to what constitutes a cryptocurrency under these rules. Their proposal to the SEC aims to exclude certain assets that, despite being on the blockchain, resemble traditional financial products, such as tokenized deposits and tokens associated with SEC-approved products like spot Bitcoin ETFs.

Moreover, the recommendation includes a call for regulated banks to be relieved from the requirement of reporting their crypto assets as liabilities. However, they would still need to disclose details of their cryptocurrency dealings in their financial statements. This approach seeks to strike a balance between transparency in crypto asset management and easing the regulatory burden on banks, thus fostering a more crypto-friendly banking environment.