The U.S. Securities and Exchange Commission (SEC) has reportedly exempted certain banks from mandatory disclosure requirements under Staff Accounting Bulletin No. 121 (SAB 121), a controversial crypto-banking regulation. In this case, the section affected by this exemption is that some of the public companies, such as JP Morgan Chase, Bank of New York Mellon, and Citi, were previously mandated to report on their crypto custody services.
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Exemption for Banks Demonstrating Safe Custodial Practices
Bloomberg reported that fact based on the anonymous source in the SEC says that exemption is provided to such banks that have proved themselves to be taking proper measures for safe custody of clients’ assets. Critics, notably crypto enthusiast Gyges, say that SAB 121 severely influences banks’ balance sheets and risk management, effectively limiting their ability to provide cryptocurrency custody services. They argue that this makes crypto users worse off and demonstrates weak policy-making.
He argued that the move exemplifies the SEC’s “worst practices” under Chair Gary Gensler’s leadership, suggesting the decision favors certain institutions based on connections rather than merit. He also argued that perhaps at the time of formulation of the regulation, SAB 121, the SEC may not have comprehensively grasped the effects the regulation would have on banks.
Congressional and Presidential Reactions
SEC accountants are usually not very informed about the legal aspect of bank capital regulation, and Gensler testified in April of 2023 that the SEC never obtained input from the bank regulators on the regulation. In this respect, there has been a lot of criticism regarding the failure of governments to consult people on the policy. Both the Houses of Congress overturned the banking regulation on cryptocurrencies bipartisanly. However, President Biden vetoed the congressional resolution, drawing widespread criticism. The House recently voted to override the veto but fell short of the required two-thirds majority, with a 228-184 tally.
The SEC’s decision to exempt certain banks from SAB 121 has sparked controversy and debate. Critics argue that the move favors connected institutions and hinders the ability of banks to offer crypto custody services. As the market watches closely, the implications of this decision on the future of crypto banking and regulation remain uncertain.
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