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SEC Crypto Accounting Guidance Pushes Up Costs For Banks

 |  September 19, 2022

Despite demand from an increasing number of their clients for cryptocurrency products and services, many banks are reportedly holding back on offering them because accounting guidance from the U.S. Securities and Exchange Commission (SEC) makes it unprofitable to do so. 

The March 31 accounting guidance from the SEC requires that public companies holding crypto assets for clients count them as liabilities on the balance sheets. Because banks are required by regulations to hold cash against balance sheet liabilities, that makes it uneconomical for banks to offer that service, Reuters reported Friday (Sept. 16), citing several sources. 

“We’ve heard from a wide variety of stakeholders, banks among them, about how challenging this new staff accounting bulletin would be for them to be able to enter in to the space of custodying crypto assets,” U.S. Rep. Trey Hollingsworth said in an interview, per the report. “This edit came down without guidance, without input, without feedback, without conversation being had with industry.” 

In its March 31 advisory, the SEC said this practice is necessary because crypto has “technological, legal and regulatory risks,” and at a conference last week an SEC representative said that these assets have “unique” risks that make them liabilities, according to the report. 

While the guidance applies to all public companies, it is especially problematic for banks because their strict capital rules, overseen by bank regulators, require them to hold cash against balance sheet liabilities. The SEC did not consult the banking regulators when issuing the guidance, according to four of the people.

“This has thrown a huge wrench in the mix,” one of the sources said. Lenders building out crypto offerings have had “to cease moving forward with those plans pending any kind of further action from the SEC and the banking regulatory agencies,” they added.