The U.S. Securities and Exchange Commission (SEC) has provided new guidance that could allow banks to offer crypto asset custody services without adhering to strict accounting requirements under Staff Accounting Bulletin No. 121 (SAB 121).
Background on SAB 121
SAB 121, introduced by the SEC in 2022, requires public companies to account for digital assets held for clients on their balance sheets. The regulation poses risks for banks, as it could classify their customers as unsecured creditors if a custodian goes bankrupt. This rule has prevented many banks from providing crypto custody services due to additional capital requirements and regulatory hurdles.
Legislative Actions Challenge SAB 121
In May 2024, legislative actions were taken to challenge SAB 121. These actions aimed to reduce barriers for banks in offering digital asset custody services.
Implications for Banks and Crypto Firms
The new SEC guidance opens doors for institutional crypto custody, raising fairness concerns for crypto-native firms like Coinbase.
Now that banks can offer crypto asset custody by meeting specific regulatory conditions, this could significantly expand the digital asset custody market but also raises questions about competition and fairness for existing crypto firms.
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