US Banks Urge SEC to Rethink Crypto Asset Definitions Amid ETF Boom
Summary:
Major US banks and financial institutions are urging the Securities and Exchange Commission (SEC) to rethink its crypto asset definitions. The proposed change would permit these institutions to act as custodians for the recently approved spot Bitcoin exchange-traded funds (ETFs). The collective request is to narrow the definition of crypto assets under existing guidelines to exclude traditional assets recorded on the blockchain. With this shift, banks would be exempt from holding crypto assets on their balance sheets, reducing expenses and enabling them to offer broad-scale crypto custody services. The appeal is seen as an indicator that financial institutions are eager to participate in the digital finance sector.
Leading U.S. banks and finance companies are urging the Securities and Exchange Commission to reconsider its categorization of cryptocurrency assets. This request could potentially allow these institutions to have a more significant role in the burgeoning crypto sector, particularly as custodians for the newly sanctioned spot Bitcoin exchange-traded funds (ETFs). This proposition was presented to SEC Chair Gary Gensler in a letter authored on February 14 by a trade coalition consisting of the American Bankers Association, the Bank Policy Institute, the Financial Services Forum, and the Securities Industry and Financial Markets Association. The coalition's letter emphasized the recent sanctioning of spot Bitcoin ETFs in the U.S., but also pointed out that U.S. banks were not involved in the approved products as asset custodians.
The coalition is requesting the SEC to contemplate amending Staff Accounting Bulletin 121 (SAB 121). Introduced in March 2022, SAB 121 is responsible for giving advice on how crypto asset custody obligations should be accounted for. The current guidelines necessitate banks to incorporate crypto assets into their balance sheet, which escalates costs and impedes their ability to offer comprehensive crypto custody services.
The group is now proposing that the SEC narrowly define crypto assets in SAB 121 so as to exclude traditional assets documented on the blockchain. In doing so, assets like tokenized deposits would not fall under the stringent crypto guidelines. They also implore the SEC to exempt banks from the on-balance sheet requisites while maintaining disclosure requirements. This new structure would, they argue, offer both regulatory transparency and space for banks to engage with the crypto sector.
Matt Hougan, the chief investment officer of Bitwise, stated that this proposal suggests a change in “tone around crypto regulation in Washington," indicating that financial institutions are keen on joining the fast-growing digital finance sector. Bloomberg ETF analyst Eric Balchunas commented that American banks are pushing for regulatory amendments to engage in digital asset activities.
The author of a weekly Bitcoin newsletter stated, "Bankers are getting frustrated they can't hold spot Bitcoin ETFs for their clients. The Q1 FOMO is already driving them mad." Farside's preliminary data indicates that the total aggregate inflows into the newly launched spot Bitcoin ETFs have now exceeded $4 billion, even with increasing outflows from Grayscale.
Published At
2/16/2024 7:11:10 AM
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