42 US Congressmen Demand SEC Allow Banks to Store Cryptocurrency

In a recent letter to the US Securities and Exchange Commission (SEC), 42 US Congressmen urged the agency’s chair, Gary Gensler, to allow banks to custody cryptocurrency.

The US SEC allowed public companies not to report their customers’ crypto holdings on their balance sheets in July, provided they countervail risks against customers.

US Congressmen Push for Banks to Custody Crypto

Patrick McHenry, Cynthia Lummis, French Hill, and Tim Scott make four of the 42 signatures supporting bank crypto custody. The letter cited “overwhelming bipartisan votes” to disapprove the SEC’s Staff Accounting Bulletin No. 121, otherwise termed SAB 121.

The congressional representatives criticized the issuance of SAB 121, stating that it occurred without consulting prudential regulators. They argued that the accounting method outlined in SAB 121 conflicts with established standards and fails to accurately represent custodians’ legal and economic obligations. According to the legislators, this misrepresentation could expose consumers to a higher risk of financial loss.

“Both the House and Senate vote on H.J. Res. 109 sent a clear message from Congress to the SEC. Issuing staff guidance to impose policy changes is not appropriate and violates both the spirit and the letter of the Administrative Procedure Act. We urge you to rescind SAB 121 and work with Congress to ensure Americans have access to safe and secure custodial arrangements for digital assets,” an excerpt in the letter read.

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SAB 121 requires crypto-holding entities that report to the SEC to list their clients’ crypto assets on their balance sheets. This means custodians must recognize a liability and hold a corresponding offset for those assets.

As a result, this guidance discourages banks from acting as crypto custodians. This could impact key prudential requirements, making it less appealing for banks to offer custody services.

In July, SEC introduced exceptions to SAB 121 following a failed attempt to overturn President Joe Biden’s veto. The regulator allowed public companies to avoid reporting customers’ crypto holdings on their balance sheets. However, this came with a crucial condition: firms must mitigate the risks and implement customer protection measures.

The SEC clarified that this exception aims to address the constraints imposed by SAB 121, acknowledging that some arrangements don’t require reporting liabilities on the balance sheet. Certain banks, consulting with the regulator since 2023, were reportedly permitted to bypass this requirement. Now, US congressional representatives are pushing for more banks to be allowed to custody crypto assets.

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If the SEC approves the request backed by 42 signatures, it could expand storage options for crypto investors. This comes at a time when Bitcoin and Ethereum ETFs are attracting growing institutional interest, potentially broadening the appeal of the crypto market.