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FDIC Vice Chair Travis Hill criticized the Securities and Exchange Commission’s (SEC) handling of a contentious crypto accounting guideline during a recent speech. Hill expressed disapproval of the SEC‘s Staff Accounting Bulletin 121 (SAB 121), released in March 2022, stating that it diverges significantly from established custodian practices. According to the bulletin, firms responsible for safeguarding cryptocurrencies must now list their customers’ crypto holdings as liabilities on their balance sheets.
During an event hosted by the Mercatus Center focusing on tokenization, Hill, who was nominated as a Republican to the FDIC in 2022, highlighted the discrepancy, noting, “This treatment sharply departs from how custodians account for all other assets held in custody, which are generally held off balance sheet and treated as the property of the customer, not the custodian.”
The bulletin has faced significant criticism within the crypto industry, with concerns raised that it may impede banks from offering custody services for digital assets. Lawmakers recently initiated a resolution to rescind the bulletin following a Congressional watchdog’s assertion that the SEC required congressional approval before implementing SAB 121.
Additionally, Hill addressed the impact of SAB 121 on spot bitcoin exchange-traded funds (ETFs) approved by the SEC earlier in the year. Notably, lawmakers had indicated that banks could not serve as custodians for these ETFs due to the bulletin’s provisions.
Hill questioned the fairness of the situation, stating, “It is worth asking whether it is in the public interest for one crypto exchange to provide custody services for most of the market in approved bitcoin exchange traded products, while highly regulated banks are effectively excluded from the market.”
Furthermore, Hill criticized the SEC‘s broad definition of crypto, which encompasses “tokenized versions of real-world assets.” He emphasized the importance of seeking public feedback before implementing significant policy changes, suggesting that clarification regarding SAB 121’s applicability to a broader range of tokenized assets beyond blockchain-native assets would be beneficial.
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