SEC Relaxes Crypto Reporting Rules for Banks and Brokerages: What This Means

Big news for crypto!

The SEC has opened a path for banks and brokerages to avoid reporting their customers’ crypto holdings on their balance sheets, provided they mitigate associated risks. This change responds to industry pressures and unsuccessful challenges to the SEC’s two-year-old guidance in Congress, according to a Bloomberg report.

With an election year on the horizon, the SEC’s shift may be influenced by the anticipation of pro-crypto governance.

The Inside Scoop on SEC’s New Policy

In a recent update, the SEC has permitted some financial institutions to avoid reporting customer crypto holdings on their balance sheets if they meet certain conditions, despite the controversial Staff Accounting Bulletin No. 121 (SAB 121) issued in March 2022.

The key takeaway is that SEC staff have advised that certain arrangements might not require liabilities to be reported on the balance sheet. This decision follows consultations with large banks since 2023, allowing them to bypass reporting by ensuring customer assets are protected in case of bankruptcy or failure.

Decoding the Accounting Rules

Current accounting rules require companies to record cryptocurrencies as long-term intangible assets. These assets are listed on the balance sheet at their original purchase cost and must be regularly checked for any decrease in value.

After several crypto firms filed for bankruptcy in 2022, companies sought guidance on crypto-related policies. They needed to demonstrate that they could protect customer assets similarly to traditional assets.

A New Era for Crypto!

The SEC’s adjusted stance could expand the range of companies offering crypto services. Previously, accounting treatments prevented banks from entering the crypto market because their larger balance sheets triggered capital requirements.

Since the controversy began, Congress has attempted to overturn SAB 121 with mixed results. While the House and Senate voted to reverse it, President Biden vetoed the resolution. Despite this, the SEC continues to collaborate with the industry to refine the guidance.

Industry Reactions and Speculations

Fox journalist Eleanor Terrett questioned whether this move indicates the SEC’s recognition of the need to relax SAB 121 requirements for banks and brokerages. She also speculated that it might be a reaction to Congress’s campaign for change. The SEC initially issued this guidance to inform investors about technological and legal risks following events like the FTX collapse.

Financial institutions have successfully argued for the exclusion of certain crypto products from the guidance’s scope. With the approval of spot Bitcoin products, traditional financial institutions are eager to engage in the crypto industry, a sentiment echoed by industry experts like Aaron Jacob from TaxBit.

Read Also: Another Crypto Victory: SEC Finally Drops Paxos Investigation

Do these changes go far enough? Let us know what you think!