The Securities and Exchange Commission has eliminated a controversial accounting rule that required firms to record crypto assets held for purchasers as liabilities on their balance sheets, potentially opening the door for more traditional banks to enter the crypto custody business.
The rescission of Staff Accounting Bulletin 121 marks a turning point that might reshape how financial institutions approach crypto custody, potentially resulting in consolidation within the industry and expanding institutional crypto services beyond just Bitcoin and Ethereum, in line with industry experts.
“Several large custodians reminiscent of USBank and BNY already provide fund administration and money custody for crypto ETFs. BNY also has the technical ability to custody Bitcoin and Ethereum,” Steven McClurg, CEO and founding father of Canary Capital, told etf.com.
The removal of SAB 121 would enable traditional custody providers to expand their crypto ETF services globally, McClurg explained, adding that he expects industry consolidation with crypto-native firms like Gemini or Anchorage potentially being acquired by banks.
Nonetheless, McClurg noted that the transition won’t occur overnight. Most banks will initially limit their custody services to Bitcoin and Ethereum, meaning the subsequent wave of potential crypto ETFs—including those for XRP, Litecoin, and HBAR—likely won’t 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 would still take years for many banks to develop into comfortable with their very own technological systems, but M&A would likely speed that up.”
The regulatory change, outlined in Staff Accounting Bulletin 122, requires firms to evaluate crypto-safeguarding obligations under broader accounting standards, reminiscent of U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards guidelines.
The brand new guidance takes effect for fiscal years starting after Dec. 15, 2024, though firms can adopt the changes earlier. The SEC emphasized that firms must proceed providing clear disclosures about their crypto custody obligations under existing requirements.
The change follows a series of congressional attempts to deal with the accounting requirement. A bipartisan bill to repeal SAB 121 gained initial support in each chambers last yr but was vetoed by then-President Joe Biden.