New accounting guidance from the US Securities and Exchange Commission (SEC) has thrown a spanner in banks’ cryptocurrency projects.
The update is in conflict with guidance released in March of this year, which states that US listed companies which hold cryptocurrencies on behalf of users should account for those assets as a liability on their balance sheet and inform users of the risks.
According to Reuters, the new accounting guidance would make it too capital-intensive for lenders to hold crypto tokens on behalf of clients. This guidance applies to all public companies, but banks face a particularly challenging situation due to capital rules that require them to hold cash against balance sheet liabilities.
A source told Reuters that this has “thrown a huge wrench in the mix,” and that those building a crypto offering have had to “cease moving forward with those plans pending any kind of further action from the SEC and the banking regulatory agencies.”
Nadine Chakar, head of State Street Digital, commented that the guidance does not stop them from offering crypto custody services, but does make it uneconomical to do so, adding that they, “do have an issue with the premise of doing that, because these are not our assets. This should not be on our balance sheet.”
A number of banks who were building their crypto offerings have had their operations disrupted or suspended at this time.
Additionally, in testimony earlier this week to the Senate Committee on Banking, Housing, and Urban Affairs, Gary Gensler, chair of SEC, stated: “Given that most crypto tokens are securities, it follows that many crypto intermediaries — whether they call themselves centralised or decentralised (e.g., DeFi) — are transacting in securities and have to register with the SEC in some capacity.”
He continued, “traditional financial intermediaries have expressed an interest in providing services to investors in the crypto market and to do so in compliance with time-tested investor protection rules. Existing crypto security intermediaries need to do so in compliance with investor protection rules as well. All intermediaries in our capital markets deserve to compete — and comply — on a fair playing field.”