Crypto Projects Troubled on Cost After New US Watchdog Guidelines – Democrat Blog

Washington:

Banks’ cryptocurrency projects have been turned upside down by Securities and Exchange Commission (SEC) accounting guidelines. United Stateswhich would make it too capitalistic for lenders to hold cryptocurrency tokens on behalf of clients, according to more than half a dozen people with knowledge of the matter.

A large number of lenders, including US Bancorp, Goldman Sachs Group Inc, JPMorgan Chase & Co, BNY Mellon, Wells Fargo & Co, Deutsche Bank, BNP Paribas and State Street Corp, offer or work on cryptocurrency products and services for their clients, with the aim of exploiting the $1 trillion cryptocurrency market, according to their public statements and media reports.

But on March 31, the SEC said public companies that hold crypto assets on behalf of clients or others must recognize them as liabilities on their balance sheets because of their technological, legal, and regulatory risks.

Although the guidelines apply to all public companies, they are particularly problematic for banks, as their strict capital rules, overseen by banking regulators, require them to hold cash against balance sheet liabilities. According to four of those people, the SEC did not consult with banking regulators when issuing these guidelines.

The SEC’s decision complicates banks’ efforts to jump on the digital asset bandwagon, and could keep them on the sidelines even as they report increased demand from customers eager to access this digital asset. booming market.

“It threw a huge mess into the mix,” one of the sources said. Lenders building cryptocurrency offerings had to “stop moving forward with these plans pending further action from the SEC and banking regulators,” they added.

Depository banks State Street and BNY Mellon, which have set up digital asset offerings, are among those whose plans have been halted, according to three people with knowledge of the matter.

While the accounting guidelines don’t prevent State Street from offering cryptocurrency custody services, they would make such an offering unprofitable, said Nadine Chakar, head of State Street Digital. “We have a problem with the premise of doing this, because these are not our assets. It shouldn’t be on our balance sheet,” Ms. Chakar said.

A spokesperson for BNY Mellon declined to comment on the status of its cryptocurrency custody project. “BNY Mellon believes digital assets are here to stay, and are increasingly becoming part of the mainstream of finance,” he added.

Asked about the SEC’s guidance, a spokesperson for US Bancorp said it continues to serve existing customers for whom it offers bitcoin custody services. “However, we are pausing the admission of additional customers to this service as we assess the evolving regulatory environment. »

A European bank executive looking to launch cryptocurrency custody services said it would now be prohibitively expensive for the bank to do so in the United States due to SEC guidelines.

Spokespersons for the SEC and other banks declined to comment.

The problems the SEC guidelines are causing for banks, which have not previously been reported, underscore the broader challenges lenders face trying to capitalize on the growing crypto market amid regulatory confusion and skepticism.

“We’ve heard from a wide variety of stakeholders, including banks, telling us how difficult this new staff accounting bulletin will be for them to be able to enter the crypto asset custody space,” the CEO said in an interview. U.S. Representative Trey Hollingsworth, who sent SEC Chairman Gary Gensler a letter in July expressing concerns about the guidance.

“This edict fell without direction, without input, without feedback, without a conversation with industry.”

CAPITAL PUNISHMENT ?

When the cryptocurrency market exploded in 2020, financial institutions were quick to take advantage. Although the cryptocurrency market has contracted significantly this year, lenders still see an opportunity for their services.

Offering to hold customers’ digital assets has emerged as the safest way to enter the market. Banks commonly offer custody of a variety of financial instruments and have generally not been required to show them on their balance sheet unless they are commingled with the bank’s own assets.

SEC guidelines deviate from this practice. At a conference last week, the SEC’s acting chief accountant said that custody crypto assets present “unique” risks that meet the definition of a liability under US accounting standards.

In a June letter to banking regulators, the Securities Industry and Financial Markets Association, the American Bankers Association and the Bank Policy Institute, however, said those risks were already mitigated by strong banking supervision and rules.

Taking into account Basel’s international capital rules, the guidelines could cost more than a dollar of capital for every dollar of digital assets held, the groups estimated, meaning that custody of cryptocurrencies ” would be effectively prohibited.

SEC guidelines also appear to apply when lenders outsource the custody function to a third party, such as Anchorage Digital, the sources said.

Diogo Mónica, president of Anchorage Digital, said the cost of capital was “totally unsustainable” and that “every bank” Anchorage works with is now waiting on regulators before working with Anchorage on cryptocurrency custody solutions.

According to four of the industry sources and letters, industry groups have lobbied the SEC to exclude banks from the guidelines, although the agency appears unconvinced, according to one of those people. Some lenders are seeking individual exemptions instead, two people said.

The industry is also pushing banking regulators to issue guidelines that would neutralize the capital impact of SEC guidelines, although changing capital rules is a major undertaking that seems unlikely in the short term. term, according to those interviewed.

The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp declined to comment.

(With the exception of the title, this story has not been edited by blogdudemocrate.org staff and is published from a syndicated feed).

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Crypto Projects Troubled on Cost After New US Watchdog Guidelines – Democrat Blog


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