Major banks in the United States are urging the Securities and Exchange Commission (SEC) to revise its crypto asset definition to enable their participation as custodians for Bitcoin exchange-traded funds (ETFs). Despite the recent approval of spot Bitcoin ETFs, banks have been notably absent from the custodian role, a position they commonly hold for other Exchange-Traded Products (ETPs).
Push for Policy Revision
In a joint letter to SEC Chair Gary Gensler, a coalition of banking associations, including the Bank Policy Institute and American Bankers Association, highlighted the exclusion of banking organizations as asset custodians in the approved Bitcoin ETF products. They emphasized the need for adjustments to Staff Accounting Bulletin 121 (SAB 121), issued in March 2022, which governs crypto asset custody obligations.
Evolving Regulatory Landscape
The letter underscored the significant developments in the crypto landscape since the issuance of SAB 121, particularly the approval of spot Bitcoin ETFs. Current guidelines require banks to hold crypto assets on their balance sheets, posing challenges to offering crypto custody services at scale.
Proposal for Amendment
The banking coalition proposed narrowing the definition of crypto assets in SAB 121 to exclude traditional assets recorded on the blockchain. This revision would alleviate the regulatory burden on banks and facilitate their involvement in crypto custody services. Additionally, they advocated for exemptions from on-balance sheet requirements while maintaining transparency through disclosure obligations.
Industry Response and Implications
Industry experts view the banks' appeal as indicative of shifting sentiments toward crypto regulation in Washington. While some interpret it as a bid to join the digital finance wave, others see it as a response to the surge in demand for Bitcoin ETFs. Despite initial hurdles, the total inflows into newly launched spot Bitcoin ETFs have surpassed $4 billion, signaling growing investor interest in crypto assets.
That didn't take long.
— Matt Hougan (@Matt_Hougan) February 15, 2024
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