Proposed Changes to SEC Regulations
In a recent development, U.S. banks have advocated for alterations to the United States Securities and Exchange Commission’s (SEC) rules, particularly targeting the controversial Staff Accounting Bulletin 121 (SAB 121). This push comes after the exclusion of banks from acting as asset custodians for spot-Bitcoin exchange-traded funds (ETFs). A coalition of industry associations, including the American Bankers Association, the Financial Services Forum, the Bank Policy Institute, and the Securities Industry and Financial Markets Association, relayed their concerns to the regulatory body in a letter dated February 14th.
Impact on the Crypto Ecosystem
The trade group coalition emphasized the potential repercussions of the current guidance outlined in SAB 121. They raised significant points regarding the safety and stability of the ecosystem, noting the concentration risk posed by having a single nonbank entity serve as the custodian for the majority of these Exchange-Traded Products (ETPs). The coalition suggested that allowing prudentially regulated banking organizations to offer custodial services for ETPs could help mitigate this risk effectively.
“We believe that this result could raise concentration risk, as one nonbank entity now serves as the custodian for the majority of these ETPs.”
Furthermore, the coalition urged the SEC to reconsider its definition of crypto-assets to accommodate various use cases like spot-Bitcoin ETFs and tokenized deposits. They highlighted the differences between cryptocurrencies like Bitcoin, which operate on a public, permissionless network, and traditional financial instruments recorded on controlled blockchain networks with added transaction capabilities.
“There are significant differences between a cryptocurrency like Bitcoin that exists on a public, permissionless network versus a traditional financial instrument.”
The publication of the letter sparked reactions from key figures in the cryptocurrency space. Matt Hougan, CEO of BitWise Invest, expressed his viewpoint, stating, “If you were wondering if bitcoin ETFs were going to change the tone around crypto regulation in Washington, here’s your answer.” Similarly, Eric Balchunas, Bloomberg’s Senior ETF analyst, emphasized the desire of industry players to be part of the evolving landscape.
- “They want a piece of the action.” – Eric Balchunas
- “I don’t blame them, it isn’t fair.” – Eric Balchunas
The potential outcome of the suggested modifications would grant U.S. banks a more substantial role in managing digital assets. The letter stressed that limiting regulated banking organizations from offering digital asset safeguarding services could have adverse effects on market participants and the financial system as a whole, underscoring the importance of federal oversight and protection for customers.
“If regulated banking organizations are effectively precluded from providing digital asset safeguarding services at scale, investors and customers, and ultimately the financial system, will be worse off.”
