The SEC has provided new guidance allowing banks to avoid reporting customers’ crypto funds on their balance sheets if they implement measures to mitigate associated risks.
The U.S. Securities and Exchange Commission (SEC) has eased requirements, that previously mandated banks and brokerages to report customers’ crypto holdings on their balance sheets, provided they implement measures to mitigate associated risks.
According to a Bloomberg report, SEC staff have begun offering guidance indicating that certain arrangements might not require reporting liabilities on the balance sheet. Sources close to the regulator’s approach say that some large financial lenders that have previously consulted with the SEC on the matter got the green light to bypass the balance sheet reporting.
Now, they have to ensure their customers’ assets can be protected in the event of bankruptcy or failure.
The SEC presented the guidance in 2022 a few months before the FTX crypto exchange went bankrupt, telling banks that the measures were needed to inform investors about risks associated with the crypto market. However, financial lenders argued that wallets and spot Bitcoin exchange-traded products should be outside the scope of the crypto guidance, Bloomberg says, citing sources close to the SEC.
In early March, the House Financial Services Committee voted on a resolution to nullify a guideline from the SEC that has been a barrier for banks wishing to engage in crypto custody services. The House resolution sought to revoke the SEC’s Staff Accounting Bulletin 121, which required banks to report their customers’ crypto holdings on their balance sheets, leading to increased capital requirements and deterring banks from offering crypto services.
Although the House passed the resolution, it eventually faced a presidential veto. The House attempted to override the veto but failed to secure the necessary votes, leaving the SEC’s guideline in place.
