SEC’s Crypto Accounting Guidelines Might Be A Costly Hurdle For Banks

As traditional financial institutions are looking into entering the crypto space, regulators looking at policing the industry are making the foray harder.

In March 2022, the US Securities and Exchange Commission put forth a guideline requiring public companies that hold crypto assets on behalf of its investors must account for them as liabilities on their balance sheets due to their technological, legal and regulatory risks.

The accounting requirement would prove to be a capital-intensive move for banks since their industry has rules pertaining to achieving a level of liquidity commensurate of its balance sheet liabilities. Lenders creating crypto offerings had “to cease moving forward with those plans pending any kind of further action from the SEC and the banking regulatory agencies,” as a source told Reuters.

In particular, U.S. Bancorp said it is “pausing intake of additional clients in this service as [it evaluates] the evolving regulatory environment,” for banks offering crypto products.

“We’ve heard from a wide variety of stakeholders, banks among them, about how challenging this new staff accounting bulletin would be for them to be able to enter in to the space of custodying crypto assets,” said U.S. Representative Trey Hollingsworth in an interview. “This edict came down without guidance, without input, without feedback, without conversation being had with industry.”

Regulatory bodies have been intensifying their campaigns to regulate the crypto space. The SEC and the Commodity Futures Trading Commission have reportedly put forward a proposal to require hedge funds to report their bets, including exposure to cryptocurrency. Meanwhile, the US Federal Reserve released an additional set of guidelines for banks that plan to conduct cryptocurrency activities, requiring the financial institutions to notify them of the act before it transpires.

A tentpole of the regulatory discussion is determining if crypto assets should be treated as securities, likes stocks and bonds. The latest addition to the argument is ethereum’s latest Merge update, shifting to a staking model which could be considered “with some changes of labeling—to lending,” according to the SEC.

Information for this briefing was found via Reuters and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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