June 27, 2022

SIFMA and ABA Question SEC Accounting Treatment of Crypto-Assets

SIFMA and the American Bankers Association ("the associations") updated their analysis of the SEC Staff Accounting Bulletin No. 121 (the "SAB"), which sets out the required accounting treatment for the holding of crypto-assets by a custodian.

As previously covered, the SAB would require that a custodian take onto its books (as both assets and liabilities) the entire value of the crypto-assets it holds in custody. The associations are now publishing their findings, having previously requested that the SEC delay the implementation of the SAB to allow them time to analyze how the SAB would impact existing safeguards.

The associations asserted that bank custodians are well-placed to deal with the risks associated with offering crypto-asset custody services at scale. The associations asserted that the technological, legal and regulatory risks outlined in the SAB could be controlled by the stringent regulatory and supervisory frameworks required of banks. The associations said that state law supports the conclusion that custodied assets are property of the customer, not the custodian. The associations concluded that traditional banks already provide a range of services regarding the custody of other assets and that these services are subject to comprehensive safety regulations and risk management. The associations highlighted that bank custodians do not take these custodial holdings onto their books as if they were principals.

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