Congress Members Pressured US SEC President to Allow Bank Custody of Bitcoin

On September 23, 2024, 42 Congress members wrote to US SEC President Gary Gensler demanding him to allow banks to custody of Bitcoin. 

Notably, SEC’s Chief Accountant Paul Munter, Remarks before the 2024 AICPa and CEMA conference on banks and savings institutions accounting for crypto-assets safeguarding obligations highlights no banks could hold custody of Bitcoin or crypto-related assets.

In the statement, Munter says, “The arrangement is not within the scope of SAB 121 and the introducing broker-dealer should not recognize a liability on its balance sheet to reflect an obligation to safeguard crypto-assets related to the crypto-assets held for its customers at the third party.”

Firstly, the Bank had secured written approval from its prudential regulator at the state level for its crypto-asset safeguarding activities. This approval followed a rigorous review of the Bank’s governance and risk management practices, demonstrating the regulator’s confidence in the safety and soundness of its operations. This process also involved engagement with the Bank’s primary federal prudential regulator, adhering to the regulator’s stated expectations.

The Entity also emphasized the Bank’s comprehensive operational controls designed to mitigate risks associated with holding the private key for its customers’ blockchain wallets. These controls were subject to continuous supervision and oversight by the Bank’s prudential regulators, further enhancing the security and integrity of the safeguarding arrangements.

“Central to the Entity’s argument was the Bank’s commitment to holding its institutional customers’ crypto-assets in a “bankruptcy-remote” manner. This segregation ensured that the customer remained the beneficial owner of the crypto-assets, with the Bank acting solely as a custodian.”

Congress Pressured the SEC to Rescind the Order

According to the joint letter, the congress members disapprove of the US Securities and Exchange Commission (SEC)’s staff accounting bulletin No. 121 (SAB 121) urging it to rescind the staff guidance.

The SAB 121 was initially issued without consulting any of the prudential regulators. However, “It would require custodians to recognize a liability and hold a corresponding offset on their balance sheets, measured at the fair value of the customer’s digital assets.”

“This accounting approach, which deviates from the established accounting standards, would fail to accurately reflect the underlying legal and economic obligations of the custodian, and place consumers at a greater risk of loss” they emphasized.

Moreover, “The government accountability office issued a legal decision that SAB 121 is a rule for the Congressional Review Act. By issuing this rule under the guise of staff guidance, the SEC evaded the notice and comment rulemaking process required by the Administrative Procedure Act (APA) Rescinding SAB 121 is the only appropriate action and well within the SEC’s authority. There is ample precedent for revisiting a staff accounting bulletin.”