US banking giants are writing a joint letter to the U.S. Securities and Exchange Commission (SEC) arguing for spot Bitcoin (BTC) exchange-traded fund (ETF) custodianship.
The letter, which was sent on Valentine’s Day by four industry leaders, addresses SEC Chairman Gary Gensler and asks him to modify a law passed in 2022 (SAB No. 121) that regulates crypto custodianship in light of several key developments, such as the approval of spot market BTC ETFs.
According to Thomson Reuters, SAB No. 121 forces entities safeguarding digital assets to present them on their balance sheet at a fair value.
However, the Bank Policy Institute American, the Bankers Association, the Financial Services Forum, and the Securities Industry and Financial Markets Association all say that SAB No. 121 hinders their ability to participate.
“Since SAB 121 was issued in 2022, the Associations have articulated their concerns regarding the bulletin to the Commission both in writing and in meetings with Commission staff.
The foremost concern identified and discussed is how the on-balance sheet requirement of SAB 121 negatively impacts U.S. banking organizations and investors due to the associated prudential implications.
The Associations have underscored that on-balance sheet treatment will preclude highly regulated banking organizations from providing a custodial solution for digital assets at scale.
Moreover, the Associations have highlighted that the on-balance sheet requirement, coupled with the overly broad definition of ‘crypto asset’ in SAB 121, will have a chilling effect on banking organizations’ ability to develop responsible use cases for distributed ledger technology (DLT) more broadly.”
As a solution, the groups propose narrowing down the definition of “crypto asset” as well as exempting banking organizations from having to list the assets on-sheet but maintaining the disclosure requirements.
“Exempting banking organizations from the on-balance sheet treatment but requiring them to make certain disclosures about their digital activity would mitigate the concerns raised by banking organizations without undermining the goal of SAB 121 to promote disclosures to investors.”
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