Major banks and financial institutions in the United States are urging the United States Securities and Exchange Commission (SEC) to revise its definition of crypto assets, potentially enabling them to assume a more significant role in the crypto sphere, such as serving as custodians for the recently sanctioned spot Bitcoin exchange-traded funds.
On 14th February, a coalition of trade groups including the Bank Policy Institute, American Bankers Association, Financial Services Forum, and Securities Industry and Financial Markets Association presented their argument in a letter to SEC Chair Gary Gensler.
The coalition highlighted the recent endorsement of spot Bitcoin (BTC) exchange-traded products in the U.S., observing the absence of American banks as custodians for the approved products.
“The Commission recently approved 11 Spot Bitcoin ETPs, allowing investors access to this asset class through a regulated product.
However, notably absent from those approved products are banking organizations serving as the asset custodian, a role they regularly play for most other ETPs.”
The letter called for the SEC to consider adjustments to Staff Accounting Bulletin 121 (SAB 121), issued in March 2022, which offers guidance on accounting for crypto asset custody obligations.
They noted that it has been two years since the issuance of the guidance, and there have been “several relevant developments” during this period, including the approval of spot Bitcoin ETFs.
The existing guidance mandates banks to include crypto assets on their balance sheet, resulting in increased costs and hindrances to offering crypto custody services on a large scale.
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The coalition has now urged the SEC to refine the definition of crypto assets in SAB 121 to exclude traditional assets recorded on the blockchain.
This would prevent assets like tokenized deposits from falling under the stringent crypto guidelines.
They also seek exemptions for banks from the on-balance sheet requirements while retaining the disclosure obligations, enabling them to engage in certain crypto activities while maintaining transparency for investors.
In a post on X, Bitwise chief investment officer Matt Hougan stated that the letter indicates a change in the “tone around crypto regulation in Washington,” with others suggesting that banks are expressing interest in joining the “digital finance wave.”
“US banks, left off key bitcoin ETF roles, are pushing SEC to tweak guidance around holding digital assets,” summarised Bloomberg ETF analyst Eric Balchunas.
Meanwhile, TheBitcoin Therapist, author of a weekly Bitcoin newsletter, echoed the sentiment:
“Bankers are getting annoyed they can’t hold spot Bitcoin ETFs for their customers. The Q1 FOMO is already driving them mad.”
According to preliminary data from Farside, total aggregate inflows to the recently launched spot Bitcoin ETFs have just surpassed $4 billion despite an acceleration in outflows from Grayscale.
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