SEC Guidance ‘Deters’ US Banks’ Crypto Plans
March SEC guidance is deterring US banks from offering crypto asset custody services by making them prohibitively costly, report says
US banks’ plans to tap into the cryptocurrency market are being deterred by regulatory guidance released earlier this year that makes their projects too capital-intensive, according to a report.
The report comes as the US administration releases an initial framework for future crypto regulation, seeking to mitigate the potential risks of digital assets while encouraging private sector innovation and cooperation on an international level.
Banks typically offer custody services for a variety of financial instruments, and are generally not required to reflect these assets on their balance sheets unless they are commingled with the banks’ own assets.
But in guidance issued in March the Securities and Exchange Commission (SEC) departed from this practice, saying that all public companies, including banks, that hold crypto assets on behalf of clients or others must account for them as liabilities on their balance sheets due to their technological, legal and regulatory risks.
‘Huge wrench’
‘Huge wrench’For banks this creates particular problems because they are required to hold cash against balance sheet liabilities.
The guidance has effectively “thrown a huge wrench” into banks’ plans, Reuters reported, citing an unnamed source.
The source added that lenders have had to “cease moving forward” with crypto offerings pending further action by the SEC and banking regulatory agencies.
Banks including US Bancorp, Goldman Sachs Group, JPMorgan Chase & Co, BNY Mellon, Wells Fargo & Co, Deutsche Bank, BNP Paribas and State Street have said publicly they offer or are working on crypto offerings.
Prohibitive cost
State Street told the news agency the SEC guidance made crypto custody services uneconomical and that the bank had a problem with the idea of reflecting such holdings on its balance sheet because “these are not our assets”.
US Bancorp said it was still servicing existing clients for its Bitcoin custody services but was “pausing intake of additional clients in this service as we evaluate the evolving regulatory environment”.
An unnamed executive at a European bank looking to launch crypto custody services said the SEC guidance made such a service prohibitively costly to do so in the US.
US Representative Trey Hollingsworth criticised the guidance, telling Reuters it “came down without guidance, without input, without feedback, without conversation being had with industry”. Hollingsworth voiced his issues with the guidance in a July letter to the SEC.
