SEC Says Crypto Accounting Rule Won’t Apply to Some Banks

The Securities and Exchange Commission is removing a key obstacle that has been standing in the way of banks offering crypto-related services. It has begun waiving a requirement that banks and brokers report crypto assets under custody as liabilities on their balance sheet, in cases where they have “sufficiently demonstrated” that clients’ assets will not be affected in the event of a bankruptcy.

In 2022, the SEC issued an accounting guidance—staff accounting bulletin No. 121—directing public companies that hold crypto for clients to count it as a liability on their balance sheets. It deterred banks from offering crypto-related services, because it would subject them to higher capital requirements.

Congress voted to rescind the guidance, a move supported by banking trade groups, but in May, President Joe Biden vetoed the resolution.

But now the SEC has decided that it will exempt “certain broker dealers and custody banks” from the requirement in cases where they “have sufficiently demonstrated to SEC staff that their fact patterns are different from those described in SAB 121,” including “ensuring that customers maintain ownership of their assets even in the case of a resolution or bankruptcy,” a spokesperson for the SEC said in an emailed statement.

Financial firms including State Street and BNY Mellon have advocated for the SEC to exempt banks from the balance sheet treatment. BNY launched a crypto custody business in 2022, but it remains small, with minimal balance sheet implications for now.

Bloomberg Law earlier reported on the news, citing an unnamed SEC person.