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Banking Groups Challenge SEC Regulation

The regulation places responsibility on banks to measure safeguarding assets and obligations on their balance sheets

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  • Written by  Banking Exchange staff
Banking Groups Challenge SEC Regulation

Key banking associations have voiced support for H.J. Res. 109, rejecting the Staff Accounting Bulletin 121 (SAB 121) decision.

The American Bankers Association, Bank Policy Institute, Financial Services Forum, and Securities Industry and Financial Markets Association have written a collective letter urging members of the House of Representatives to support the congressional solution.

SAB 121, issued by the Securities and Exchange Commission, discussed regulatory restrictions around the accounting standards for digital assets.

The letter stated that for the past two years, the proposed standards have imposed difficulty on banks attempting to offer large-scale digital asset custody services.

Restrictions introduced by SAB 121 require organizations to measure safeguarding assets and obligations on their balance sheet at the fair value of the related assets.

The value of client assets being transparent on balance sheets impacts liquidity, certain capital, and other prudential requirements, the letter said.

The new balance sheet requirements are also limiting the exploration and use of new technologies such as distributed ledger technology (DLT), which reduces potential data efficiency increase.

Moreover, SEC’s proposal of Rule 15c3-1, treating the on-balance sheet items as non-allowable assets encumbers regulated broker-dealers from custody services.

The letter said the SAB 121 requirements "threaten the industry’s ability to provide its customers with safe and sound custody of digital assets”.

It said:  “Limiting banks’ ability to offer [digital asset] services leaves customers with few well-regulated, trusted options for safeguarding their digital asset portfolios and ultimately exposes them to increased risk.”

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