Regulation
SEC Simplifies Cryptocurrency Reporting Rules for Banks, Brokers
The SEC has provided new guidance that allows banks to avoid reporting clients’ crypto funds on their balance sheets if they implement measures to mitigate the associated risks.
The United States Securities and Exchange Commission (SEC) has relaxed the requirements that previously imposed banks and brokers to report customers’ cryptocurrency deposits on their balance sheets, provided they take steps to mitigate the associated risks.
According to a Bloomberg report, the SEC staff has begun offering guidance indicating that some deals may not require liabilities to be reported on the balance sheet. Sources familiar with the regulator’s approach say some large lenders that had previously consulted with the SEC on the issue have gotten the green light to bypass balance sheet reporting.
They now have to ensure that their clients’ assets are protected in the event of bankruptcy or insolvency.
The SEC unveiled its guidelines in 2022, just months before cryptocurrency exchange FTX foulstelling banks that the measures were needed to inform investors about the risks associated with the cryptocurrency market. However, financial lenders argued that exchange-traded Bitcoin spot wallets and products should be outside the scope of the cryptocurrency guidelines, Bloomberg said, citing sources familiar with the SEC.
In early March, the House Financial Services Committee voted on a resolution to overturn an SEC guideline that has hindered banks from engaging in cryptocurrency custody services. The House resolution looked for to repeal the SEC’s Staff Accounting Bulletin 121, which required banks to disclose their customers’ cryptocurrency holdings on their balance sheets, resulting in increased capital requirements and dissuading banks from offering cryptocurrency-based services.
Although the House passed the resolution, in the end faced a presidential veto. The House attempted to override the veto but failed to obtain the necessary votes, leaving the SEC’s guidance in place.