SEC Reverses SAB 121 Allowing Banks to Expand Crypto Custody Services

• SEC reverses SAB 121, enabling U.S. banks to offer crypto custody services without treating assets as liabilities.
• Bitcoin price rises 1.5% to $105,800 following SEC’s decision to scrap SAB 121.
• Trump’s administration signals pro-crypto stance with SEC’s rule change benefiting banks.

Under the Trump administration, the U.S. Securities and Exchange Commission (SEC) has withdrawn Staff Accounting Bulletin 121 (SAB 121), a regulatory guidance that treated cryptocurrencies held for clients as liabilities. This is a major move from the strict approach that Joe Biden’s administration took to limit the scope of banks to participate in the crypto market.

Impact on Financial Institutions

The elimination of SAB 121 is anticipated to lower operational costs and regulatory barriers for financial institutions, thereby enhancing their capacity to offer cryptocurrency custody services. Previously, the requirement to list digital assets as liabilities discouraged banks from expanding their crypto services, confining their involvement to derivatives trading and managing ETFs for wealth clients.

With the reversal, banks like Charles Schwab are optimistic about providing more comprehensive crypto services, including the potential introduction of spot crypto trading, pending regulatory clarity.

The feedback from the financial sector has been largely positive as reflected by quick statements from key players and associations. Executives from the largest banks shared that they are willing to expand the provision of crypto services, in line with the ongoing trend of the financial sector to incorporate digital assets into existing products. The immediate aftermath saw Bitcoin’s price increase by over 1.5%, indicating market approval of the SEC’s policy shift.

Future Regulatory Landscape

With Trump’s administration signaling a more crypto-friendly stance, industry proponents are hopeful for further regulatory relaxations. The appointment of a crypto task force and the anticipations around Paul Atkins’ confirmation as the new SEC chair suggest a continued favorable outlook for digital assets. This strategic shift is to make the United States one of the greatest players in the world of cryptocurrency to lure capital and advance the industry.

This regulatory rollback is set to stimulate economic activities related to cryptocurrencies by enabling mainstream financial institutions to integrate these assets into their operations without undue burdens. As banks leverage new freedoms to offer diverse crypto services, it could lead to greater institutional acceptance and public trust in cryptocurrencies. This change not only benefits large financial entities but also promises to enhance the overall stability and legitimacy of the crypto market.