The US Securities and Change Fee (SEC) guidance on crypto custody may discourage banks from entering the market due to the cost of implementation.
According to the report, the SEC accounting guidelines acknowledged that public corporations holding crypto assets on behalf of their purchasers should account for such assets as liabilities due to the high level of risks associated with the business.
That guidance, however, poses a significant disadvantage for banks looking to provide crypto custody services.
Banking laws include stringent capital guidelines that require banks to carry money for all liabilities on their balance sheets.
Banks attempting to provide crypto custodial providers to their clients would need extra cash on hand because the crypto assets could be reported as liabilities.
That may prove too costly for many of those banks, forcing them to scale back their crypto product offerings. Banks such as Bancorp and State Avenue are currently reconsidering their digital assets provisioning due to price increases.
Nadine Chakar, CEO of State Avenue Digital, stated:
“We do have a problem with the premise of doing that as a result of these are usually not our belongings. This shouldn’t be on our steadiness sheet.”
According to a Bancorp spokesperson, the bank has stopped accepting new clients for its crypto custodial services due to regulatory requirements.
According to Source, citing anonymous sources, the SEC did not consult with banking regulators before issuing the guidance, with one source stating,
“Lenders constructing out crypto choices have had “to stop transferring ahead with these plans pending any type of additional motion from the SEC and the banking regulatory businesses.”
While the SEC has attempted to justify its guidance on numerous occasions, stakeholders such as US Consultant Trey Hollingsworth, American Bankers Association, Financial institution Coverage Institute, and Securities Trade and Monetary Markets Affiliation have questioned it.
According to the lenders, the SEC is using its guidelines to prevent banks from becoming involved in crypto custodial services.
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