At the end of March, we reported that newĀ SEC crypto custody accounting rulesĀ would make the service unattractive for banks because it might be prohibitively expensive. The in-depth explanation isĀ here. TodayĀ Reuters citesĀ an insider source as saying that indeed it has āthrown a huge wrench in the mixā making some banks rethink custody projects.
With conventional assets, if a bank provides custody services, the assets do not appear on the bankās balance sheet because itās not their assets. The SECās March guidance said that because of the risks involved in safeguarding crypto keys, the assets under custody should be treated as both an asset and liability of a company providing custody services. Given the net balance is zero, that doesnāt seem a big deal.
However, that impacts banks because they must comply with Basel III rules based on a bankās balance sheet. These rules increase the amount of low risk capital that has to be held by a bank which carries a cost, and Basel rules give a maximum risk rating to cryptocurrencies.
The worldās two largest conventional custodians,Ā BNY MellonĀ andĀ State Street, both announced plans to offerĀ digital asset custodyĀ services.
State Street Digitalās Nadine Chakar told Reuters, āWe do have an issue with the premise of doing that, because these are not our assets. This should not be on our balance sheet,ā said Chakar. Bancorp told Reuters it is pausing taking on new customers.
SIFMA and the American Bankers AssociationĀ wrote to the SEC, arguing that stringent banking regulatory and supervisory frameworks mitigate these risks.
