The stricter reporting under SAB 121 was meant to protect investors from the risks associated with crypto assets, but the SEC now feels this can be achieved with other safeguards.
Key Takeaways
The SEC is giving financial institutions a way out of reporting customer crypto on their balance sheets.
The change could give crypto holders more options for storing their crypto with established financial institutions.
The US Securities and Exchange Commission (SEC) is allowing some banks and brokerages to avoid reporting customer crypto holdings on their balance sheets under certain conditions, Bloomberg reported today, citing a source familiar with the SEC’s guidelines.
To avoid the reporting requirement, companies must have safeguards in place to address risks associated with crypto holdings. These safeguards include protecting assets in case of bankruptcy and having strong internal controls.
Bloomberg’s source said the change was the result of “closed-door” negotiations between financial entities and the SEC. The regulator believes companies have improved security measures to address hacking and business failures that could put investors’ crypto assets at risk.
Previously, the accounting treatment discouraged banks from offering crypto services. With the new approach, US crypto holders will have more options when it comes to choosing where to store their assets.
The change was revealed shortly after a recent failed attempt to overturn the SEC’s Staff Accounting Bulletin No. 121 (SAB 121) via a veto override in Congress.
On Thursday, the US House of Representatives conducted a vote to overturn President Biden’s veto of the anti-SAB 21 bill. Though a majority voted to overturn the veto, it wasn’t enough to reach the two-thirds majority needed.
As a result, the veto of President Biden remains in force, and SAB 121 remains in place. The SEC will continue to enforce its accounting guidance for crypto-asset custody.
With the SEC’s approval of spot Bitcoin ETFs in January, banks and financial institutions are eager to enter the crypto market. The latest change could facilitate that.
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