Major Banking and Financial Associations Urge SEC to Amend SAB 121 for Digital Asset Custody

On February 14, 2024, the Financial institution Coverage Institute (BPI), American Bankers Affiliation (ABA), Financial Companies Discussion board (the Discussion board), and the Securities Business and Financial Markets Affiliation (SIFMA) collectively addressed a letter to Gary Gensler, Chair of the U.S. Securities and Change Fee (SEC). They requested the SEC to contemplate focused modifications to Workers Accounting Bulletin No. 121 (SAB 121), issued on March 31, 2022, to alleviate challenges it poses to U.S. banking organizations in digital asset custody. Because the two-year mark approaches since SAB 121’s issuance, these associations goal to align its provisions with current coverage developments and the sensible expertise of regulated banking organizations, with out undermining its unique coverage aims of enhancing investor info.

The banking and monetary associations articulate their considerations and present suggestions for refining SAB 121 to foster accountable innovation whereas guaranteeing investor safety and market integrity. They argue that the on-balance sheet requirement for safeguarding crypto-assets has precluded banking organizations from successfully offering digital asset custody at scale. This restriction, coupled with a broad definition of “crypto-asset,” has deterred the event of DLT functions past cryptocurrencies.

The letter cites the current SEC approval of Spot Bitcoin ETPs and the proposed rule on Safeguarding Advisory Consumer Property masking digital asset custody as developments warranting a reevaluation of SAB 121. They emphasize that present rules have pushed digital asset custody providers to non-banking organizations, doubtlessly compromising the monetary system’s security and stability due to an absence of regulatory oversight akin to that of banking establishments.

To mitigate these challenges, the associations advocate narrowing the definition of “crypto-assets” to exclude conventional monetary belongings recorded or transferred utilizing DLT and exempting banking organizations from on-balance sheet therapy whereas sustaining disclosure necessities. They consider these changes will allow banking organizations to contribute to the digital asset ecosystem with out pointless regulatory burdens.

The banking and monetary associations request a gathering with the SEC to talk about their proposed modifications to SAB 121, emphasizing their dedication to collaborating with the Fee. They underscore the significance of reflecting on SAB 121’s aims in mild of technological developments and coverage developments since its issuance.

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