The Bank Policy Institute, American Bankers Association, Financial Services Forum and SIFMA have requested changes to Staff Accounting Bulletin No. 121 to address digital asset custody challenges for U.S. banking organizations. The aim is to align provisions with recent policy developments and practical experiences.
On February 14, 2024, the Bank Policy Institute (BPI), the American Bankers Association (ABA), the Financial Services Forum (the Forum) and the Securities Industry and Financial Markets Association (SIFMA) jointly addressed a letter to Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC). They requested that the SEC consider targeted changes to Staff Accounting Bulletin No. 121 (SAB 121), issued March 31, 2022, to alleviate the challenges it poses to U.S. banking organizations in digital asset custody. As we approach the two years since the issuance of SAB 121, these associations aim to align its provisions with recent policy developments and the practical experience of regulated banking organizations, without undermining the original policy objectives of improving investor information.
The banking and financial associations express their concerns and provide recommendations for refining SAB 121 to promote responsible innovation while ensuring investor protection and market integrity. They argue that the requirement on the balance sheet to protect crypto assets has deterred banking organizations from custodial digital assets on a large scale. This limitation, coupled with a broad definition of ‘crypto assets’, has pushed the development of DLT applications beyond the cryptocurrencies.
The letter cites the recent SEC approval of Spot Bitcoin ETPs and the proposed rule for Protecting Advisory Client Assets Regarding Custody of Digital Assets as developments that warrant a reevaluation of SAB 121. They emphasize that current regulations have driven the custody of digital assets to non-bank organizations. This could jeopardize the safety and stability of the financial system due to a lack of regulatory oversight, similar to that of banking institutions.
To address these challenges, the associations recommend narrowing the definition of ‘crypto assets’ so that traditional financial assets recorded or transferred using DLT are excluded and banking organizations are exempted from on-balance sheet treatment, while disclosure requirements are maintained. They believe that these adjustments will enable banking organizations to contribute to the digital asset ecosystem without unnecessary regulatory burden.
The banking and financial associations request a meeting with the SEC to discuss their proposed changes to SAB 121, emphasizing their commitment to cooperate with the Commission. They underline the importance of reflecting on the objectives of SAB 121 in light of technological advances and policy developments since its issuance.
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