Yesterday U.S. Senator Cynthia Lummis and Representative Patrick McHenry sent a letter to banking regulators querying the SEC’s crypto custody accounting rule. They assert that the rule would put client digital assets at greater risk and addressed their concerns to the Federal Reserve, FDIC, OCC and National Credit Union Administration.
By convention, traditional assets held in custody are treated as belonging to clients and hence do not appear on the custodian’s balance sheet. At the end of March 2022, the SEC issued accounting bulletin 121, which said that digital assets should appear as both an asset and liability on the custodian’s balance sheet because of the heightened risks they represent, including cyber and regulatory risks.
In yesterday’s letter, the lawmakers gave the example of the Celsius bankruptcy, where Earn clients were treated as unsecured creditors. They argue that SAB 121 forced the assets to be on the balance sheet, creating a legal risk. However, the accounting treatment of assets is different from the legal treatment.
Article continues …
Want the full story? Pro subscribers get complete articles, exclusive industry analysis, and early access to legislative updates that keep you ahead of the competition. Join the professionals who are choosing deeper insights over surface level news.
