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

The Banking Policy Institute, the American Bankers Association, the Financial Services Forum, and SIFMA requested changes to Staff Accounting Bulletin No. 121 to address digital asset custody challenges for U.S. banking organizations. The aim is to bring the provisions into line with recent policy developments and practical experience.

On February 14, 2024, the Banking Policy Institute (BPI), the American Bankers Association (ABA), the Financial Services Forum (the Forum) and the Securities Industry and Financial Markets Association (SIFMA) collectively addressed letter to Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC). They asked the SEC to consider targeted modifications to Staff Accounting Bulletin No. 121 (SAB 121), issued on March 31, 2022, to ease the challenges it poses to US banking organizations in the custody of digital assets. As the two-year mark of SAB 121 approaches, these associations seek to align its provisions with recent policy developments and the practical experience of regulated banking organizations without undermining the policy’s original goals of improving investor information.

Banking and finance associations express their concerns and provide recommendations to improve SAB 121 to promote responsible innovation while ensuring investor protection and market integrity. They argue that the balance sheet requirement to protect crypto-assets has prevented banking organizations from providing effective custody of digital assets at scale. This limitation, combined with a broad definition of “crypto-asset”, has hindered the development of DLT applications beyond cryptocurrencies.

The letter cited the SEC’s recent approval of spot bitcoin ETPs and the proposed rule on advisory client asset protection covering digital asset custody as developments necessitating a reevaluation of SAB 121. They emphasized that current regulations have targeted digital custody services. assets to non-banking organizations potentially threatening the safety and stability of the financial system due to a lack of regulatory oversight similar to that of banking institutions.

To mitigate these challenges, the associations recommend narrowing the definition of “crypto-assets” to exclude traditional financial assets recorded or transferred using DLT, and exempting banking organizations from balance sheet treatment, while maintaining disclosure requirements . They believe these adjustments will allow banking organizations to contribute to the digital asset ecosystem without unnecessary regulatory burdens.

The banking and finance associations requested a meeting with the SEC to discuss their proposed modifications to SAB 121, emphasizing their commitment to cooperate with the Commission. They emphasize the importance of reflecting the objectives of SAB 121 in light of technological advances and policy developments since its issuance.

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