Resolution to involve banks in crypto custody gains momentum among US lawmakers

The House Financial Services Committee (HSFC) in the United States has given its approval to a resolution aimed at overturning a guideline from the Securities and Exchange Commission (SEC) that has prevented banks from providing crypto custody services. During a markup hearing on 29 February, 31 HSFC members voted in favor of the resolution, while 20 voted against it. The resolution seeks to remove obstacles preventing heavily regulated banks from acting as custodians of digital assets, thereby ensuring consumer protection. The SEC’s Staff Accounting Bulletin No. 121, introduced in March 2022, requires institutions to record crypto holdings as liabilities on their balance sheets. Republican Congressman Mike Flood, who introduced the resolution, argued that this guideline was unfair to banks as custodial assets are typically considered off-balance sheet. He stated that complying with the guideline would impact a bank’s capital and liquidity requirements. The resolution, introduced by Flood and Democrat Representative Wiley Nickel on 1 February, still needs to pass a full floor vote in both the House and the Senate before the guideline is overturned. During the hearing, Republican Congressman Tom Emmer criticized the guideline, calling it illegal and accusing SEC Chair Gary Gensler of biased treatment towards the digital asset industry. Emmer also highlighted the concentration risk introduced by the guideline, using Bitcoin ETFs as an example. In contrast, Democrat Congressperson Maxine Waters, who voted against the resolution, saw the move to rescind the guideline as ironic, given the industry’s call for regulatory clarity. She argued that the resolution would prevent the SEC staff from providing that clarity. It is important to note that Staff Accounting Bulletins (SABs) are non-binding guidelines used by the SEC staff to assist companies in accounting for customer crypto holdings, rather than enforceable laws.