U.S. Banks Urge SEC Revisions After Exclusion from Bitcoin ETF Custodianship

U.S. Banks are advocating for the United States Securities and Exchange Commission (SEC) to revise its contentious Staff Accounting Bulletin 121 (SAB 121) after being excluded as asset custodians for spot-Bitcoin exchange-traded funds (ETFs), as per a letter dated February 14th from a coalition of trade groups to the U.S. regulator.

Comprising the American Bankers Association, the Financial Services Forum, the Bank Policy Institute, and the Securities Industry and Financial Markets Association, the trade group coalition contends that the guidance outlined in SAB 121, preventing banks from being listed as asset custodians for spot-Bitcoin ETFs, may raise "important questions about the safety and stability of this ecosystem."

The letter states, "We believe that this result could raise concentration risk, as one nonbank entity now serves as the custodian for the majority of these ETPs. That risk can be mitigated if prudentially regulated banking organizations have the same ability to provide custodial services for Commission regulated ETPs as qualified nonbank asset custodians."

Equally significant, the trade group coalition urges the SEC to amend its definition of what constitutes a crypto-asset, potentially excluding certain use cases such as spot-bitcoin ETFs and tokenized deposits if approved.

"SAB 121 makes no distinction between asset types and use cases, but instead generally states that crypto-assets pose certain technological, legal, and regulatory risks requiring on-balance sheet treatment," the letter continues. "However, there are significant differences between a cryptocurrency like Bitcoin that exists on a public, permissionless network versus a traditional financial instrument that is recorded on a blockchain network where access is controlled and transactions can be cancelled, corrected, or amended."