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SEC maintains tough stance on crypto custody rule , but allows some exceptions
In a recent address on 9 September , SEC chief accountant Paul Munter reiterated that the guidelines laid out in SAB 121 , introduced in March 2022 , will remain firmly in place .
The US Securities and Exchange Commission ( SEC ) has reaffirmed its strict approach to how firms should account for the safeguarding of crypto assets , while acknowledging exceptions for institutions that demonstrate effective risk management measures . The core of SAB 121 says that any firm holding crypto-assets for clients – whether a bank , broker , or exchange – needs to record a liability on its balance sheet to reflect its responsibility for safeguarding those assets . This liability is paired with a corresponding asset , which signifies the firm ’ s right to control the crypto held on behalf of clients . The policy supports the SEC ’ s stance that safeguarding crypto-assets involves many legal , technological , and regulatory risks that need to be transparently reported . According to Munter , the SEC continues to believe that firms responsible for holding crypto-assets should report a liability in most cases due to the possible risks . “ Absent particular mitigating facts and circumstances , the staff believes an entity should present a liability on its balance sheet to reflect its obligation to safeguard crypto-assets held for others ,” Munter said . While the SEC holds firm on its requirements , Munter noted that there are some exceptions for institutions that have taken steps to minimise the risks associated with safeguarding crypto-assets . For instance , some banks proved their crypto custody arrangements were “ bankruptcy-remote ,” meaning that if the bank goes bankrupt , the crypto-assets would not be part of the bank ’ s estate and would be protected from creditors . These banks secured approvals from state and federal regulators , set up strict controls , and got legal assurances for asset safety in bankruptcy . As a result , the SEC did not require them to record a liability on their balance sheets .
Similarly , introducing broker-dealers who handle crypto transactions but don ’ t hold the crypto keys were able to avoid recognising a liability . They used third-party custodians and clarified their role as intermediaries , showing that the responsibility for safeguarding the assets lies with the third party , not the broker . The SAB 121 story has been one with plenty of twists and turns . The bulletin has hamstrung custodians by requiring them to hold the assets on their balance sheet and therefore subjecting them capital requirements which would outweigh the benefit of safeguarding the assets . Despite passing through the US Senate and the House of Representatives , the resolution to overturn controversial crypto custody rule fell at the final hurdle with President Biden vetoing the proposals . Then in July , Global Custodian reported that the SEC was reportedly close to signing off on modifications , according to Maxine Waters , US Congresswoman and top-ranking Democrat on the House Financial Services Committee , who was speaking at a hearing to overturn the Presidential veto of SAB 121 . Despite achieving a majority vote ( 228 against 184 ), the motion to reverse the veto failed as it required the support of two thirds of the house .
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