In a recent letter to the U.S. Securities and Exchange Commission (SEC), 42 members of Congress urged Chair Gary Gensler to allow banks to hold cryptocurrency.
Back in July, the SEC decided that public companies could skip reporting their customers’ crypto holdings on their balance sheets. But there’s a catch: they must take steps to manage the risks involved.
Among the lawmakers pushing for this change are Patrick McHenry, Cynthia Lummis, French Hill, and Tim Scott. They pointed out that there was strong bipartisan support against the SEC’s Staff Accounting Bulletin No. 121, also known as SAB 121.
The representatives criticized SAB 121 for being issued without proper consultation with regulators. They argued that the accounting method in SAB 121 doesn’t align with established standards. It also fails to accurately reflect the legal and economic responsibilities of custodians. This, they say, could put consumers at a greater risk of financial loss.
As they stated, “Both the House and Senate voted on H.J. Res. 109, clearly sending a message to the SEC. Issuing staff guidance to change policy isn’t right and goes against the Administrative Procedure Act. We urge you to rescind SAB 121 and collaborate with Congress to ensure Americans have safe custodial options for digital assets.”
SAB 121 requires entities that hold crypto and report to the SEC to list their clients’ crypto assets on their balance sheets. This means custodians must recognize a liability and maintain a corresponding offset for those assets.
This guidance has made banks hesitant to act as crypto custodians. It could also affect important prudential requirements, making it less appealing for banks to offer these services.
In July, the SEC introduced exceptions to SAB 121 after a failed attempt to overturn President Biden’s veto. The regulator allowed public companies to avoid reporting customers’ crypto holdings, but they must implement customer protection measures.
The SEC clarified that this exception is meant to ease the constraints of SAB 121. They acknowledged that some arrangements don’t need to report liabilities on the balance sheet. Some banks, which have been in talks with the SEC since 2023, were allowed to bypass this requirement. Now, Congress is advocating for more banks to be permitted to custody crypto assets.
If the SEC approves this request backed by 42 signatures, it could expand storage options for crypto investors. This comes at a time when interest in Bitcoin and Ethereum ETFs is growing among institutions, potentially broadening the appeal of the crypto market.