SEC Guidance on Crypto is Scaring Off Bank From Custody Projects

Our criticism of how the Securities and Exchange Commission is trying to regulate crypto is not driven by academic ideology; it’s driven by knowing the real world effects of its misguided policies.

Coindesk reports on how the SEC is disrupting TradFi bank crypto investment.  

In March, the SEC said all U.S.-listed public companies that function as crypto custodians should account for their crypto exposure as liabilities instead of assets on their balance sheets, and disclose risks associated with those assets to investors. The custody of crypto assets by lenders present unique technological, legal and regulatory risks when compared to other assets, the SEC guidance said.

The Basel Committee on Banking Supervision, the global standard-setter for banking regulation, is planning to issue international rules for banks exposed to crypto, including strict capital requirements and exposure caps. The Basel committee's upcoming standards combined with the SEC guidance could drive U.S. banks further away from participating in digital asset markets.

Accounting crypto held on behalf of their clients as liabilities is particularly harsh on banks because they are required to hold cash to match liabilities in their balance sheets, according to the report published on Friday.

U.S. Bancorp (USB) told Reuters it was pausing the intake of new clients until it evaluates the "evolving regulatory environment," while investment bank BNY Mellon (BK) declined to comment on the status of its crypto projects.