U.S. Rep. Patrick McHenry (R-NC) and U.S. Sen. Cynthia Lummis (R-WY) are seeking clarification from federal banking regulators on how banks and financial institutions should account for the custody of digital assets.
Specifically, the lawmakers would like more information on Staff Accounting Bulletin 121 (SAB 121), issued by the Securities and Exchange Commission (SEC) on April 11, 2022. The bulletin was intended to clarify the treatment of digital assets by banks and financial institutions. Still, McHenry and Lummis contend that it may lead to significant compliance costs for institutions that custody digital assets for customers.
“Typically, custodial assets receive off-balance sheet accounting treatment. This is largely because customers retain ownership of their custodial assets, and financial institutions are not permitted to conduct proprietary trading with customer assets. As emphasized in comment letters, SAB 121 ‘deviates from existing accounting treatment of safeguarded assets held in a custodial capacity, which does not result in assets or liabilities reported on the custodian’s balance sheet.’ In sum, the effect of SAB 121 is to deny millions of Americans access to safe and secure custodial arrangements for digital assets,” McHenry and Lummis wrote to the heads of the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the National Credit Union Administration.
The lawmakers asked the regulators to respond to several questions by March 16 that seek to bring more clarity to the issue.