Today at the SIBOS banking event, a member of the audience asked about an SEC guidance note (SAB 121) that will curtail banks from providing digital asset custody services at scale. That’s because it requires digital asset custodians to add the custodied assets to their balance sheet.
As context, regulated custodians usually hold any assets, digital or otherwise, entirely segregated from their own funds, so-called bankruptcy remote. Custodied assets generally don’t go on a balance sheet because they don’t belong to the custodian. In its March letter, the SEC says that any crypto-assets with a private key under custody carry such significant risks that they must go on the balance sheet.
This would close the door to incumbent banks custodying cryptocurrency, and also the far larger wave of securities and real-world assets that are expected to be tokenized. That’s because Basel III rules require banks to set aside capital based on their balance sheet. Proposed Basel rules treat cryptocurrencies as the highest risk. Securities and banking associations SIFMA and the ABA have written to the SEC on the custody topic.
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