Yesterday, the U.S. House of Representatives passed a bipartisan resolution to overturn the Securities and Exchange Commission’s (SEC) SAB 121, a staff accounting bulletin that restricts banks from offering digital asset custody services. Twenty-one Democrats joined Republicans in voting in favor of the resolution, with a count of 228 and 182 against. To cancel SAB 121, the Senate has to take similar action.
SAB 121 requires listed companies, including banks, to record crypto assets as both an asset and liability on the balance sheet. This is contrary to the conventional treatment of assets under custody, which usually do not appear on the balance sheet as they belong to the client. Compliance with Basel rules for banks requires banks that provide custody to set aside a dollar of capital for every dollar held in custody. Not only does this render bank cryptocurrency custody prohibitive in the United States, but also the custody of any tokenized securities. As a result, most of the custody provided for Bitcoin ETFs is from crypto specialists such as Coinbase.
There’s been considerable pushback over the rule. The Government Accountability Office (GAO) determined that SAB 121 warranted a Congressional review.
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