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The Securities and Exchange Commission has removed a controversial accounting rule that required firms to record crypto assets for clients as liabilities on their balance sheets, opening the door for more traditional banks to enter the crypto custody business .
The Staff Termination Accounting Bulletin 121 It marks a turning point that could reshape the way financial institutions approach crypto custody, potentially leading to consolidation in the industry and expanding institutional crypto services beyond just Bitcoin and Ethereum, according to experts at the industry
“Several large custodians such as USBank and BNY already provide fund administration and cash custody for crypto ETFs. BNY also has the technical ability to custodian Bitcoin and Ethereum,” Steven McClurg, CEO and founder of Canary Capital.
The elimination of SAB 121 would allow traditional custody providers to expand their crypto ETF services globally, McClurg explained, adding that he expects banks to be able to acquire them.
However, McClurg noted that the transition won’t happen overnight. Most banks will initially limit their custody services to Bitcoin and Ethereum, which means that the next wave of potential crypto ETFs, including those for XRP, Litecoin, and HBAR, will not have bank custody support at launch.
While some ETF issuers might migrate their existing products to bank custody services for convenience, McClurg explained that “it will still take years for most banks to get comfortable with their own technology systems, but M&A would likely accelerate “.
The regulatory change, described in Staff Accounting Bulletin 122, requires companies to assess crypto-tracking security obligations against broader accounting standards, such as generally accepted accounting principles and international standards guidelines. ‘financial information.
The new guidance takes effect for fiscal years beginning December 15, 2024, although companies can adopt the changes earlier. The SEC emphasized that companies must continue to provide clear features about their crypto custody obligations under existing requirements.
The change follows a series of attempts by Congress to address the accounting requirement. A bipartisan bill to repeal SAB 121 It won initial support in both chambers last year, but was vetoed by then-President Joe Biden.
