Major banks and financial institutions in the United States are urging the Securities and Exchange Commission (SEC) to revise its definition of crypto assets, allowing them to have a larger role in the crypto industry. Their goal is to act as custodians for recently approved spot Bitcoin exchange-traded funds (ETFs). A trade group coalition made up of the Bank Policy Institute, American Bankers Association, Financial Services Forum, and Securities Industry and Financial Markets Association has written a letter to SEC Chair Gary Gensler on February 14, advocating for this change. They pointed out that while spot Bitcoin ETFs have been approved, American banks are not allowed to serve as asset custodians for these products.
The group specifically requested that the SEC reconsider Staff Accounting Bulletin 121 (SAB 121), which was issued in March 2022 and provides guidance on accounting for crypto asset custody obligations. They argue that this guidance, which requires banks to include crypto assets on their balance sheets, makes it expensive and difficult for banks to provide custody services for crypto at scale. They want the definition of crypto assets in SAB 121 to be narrowed to exclude traditional assets recorded on the blockchain, preventing assets like tokenized deposits from being subject to strict crypto regulations. They propose exempting banks from on-balance sheet requirements but still requiring them to disclose their crypto activities for the sake of transparency to investors.
This move by major banks and financial institutions signals a shift in the regulatory tone towards crypto in Washington. The request to revise the definition of crypto assets shows that banks are interested in getting involved in the digital finance industry. The letter has garnered attention from industry experts who see it as a sign of growing frustration among bankers who are unable to offer spot Bitcoin ETFs to their customers. Despite this, spot Bitcoin ETFs have seen significant inflows, reaching over $4 billion in aggregate inflows, according to preliminary data from Farside.
American banks are appealing to the SEC to reconsider its regulations in order to allow them to participate more fully in the emerging crypto market. They believe that by revising the definition of crypto assets and exempting banks from certain requirements, they can provide custody services and engage in crypto activities while still ensuring transparency for investors. The outcome of this appeal remains to be seen, but it highlights the growing interest of traditional financial institutions in the crypto industry.
Spot Bitcoin ETFs have been gaining traction despite the limitations faced by American banks. This shows the immense demand for these investment products and the potential they hold. It’s time for the SEC to listen to the banks and revise the regulations accordingly. Let’s empower banks to fully participate in the emerging crypto market!
This move by the banks is just another example of them trying to exert control and influence over a disruptive and decentralized technology.