According to digital asset and blockchain investment firm Galaxy Digital, the SEC is taking a different tack regarding cryptocurrency custody, which could open the door for traditional banks to enter the digital ecosystem.
In their penultimate weekly report, Galaxy Digital analysts highlighted the speech made by Paul Munter, chief accountant of the United States Securities and Exchange Commission (SEC), on the SAB 121 regulation, which has generated a great debate in the financial and cryptocurrency world, due to the limitations that this regulation imposes on the custody of cryptocurrencies and digital assets by traditional banks.
However, in a context where cryptocurrency regulation is becoming increasingly crucial, it seems that Munter's recent speech has shed light on the SEC's stance on SAB 121, suggesting a possible opening for regulated financial institutions in the country to enter the cryptocurrency custody market.
Galaxy Digital, which is one of the most influential firms in the crypto space, has expressed its optimistic view on this development, stating that the agency that oversees and regulates securities in the United States appears to be softening its approach to crypto custody.
Paul Munter's speech highlights a shift in the SEC's narrative on cryptocurrencies
As reported by Galaxy Digital, Munter said in his speech that the SEC would not oppose banks conducting an assessment to determine that the accounting requirements set forth in SAB 121 do not apply to their cryptocurrency custody situation.
Esta regulations, which was introduced in 2022, requires banks and public companies to include the digital assets they hold on their balance sheets, potentially turning clients into unsecured creditors in the event of the custodian’s bankruptcy. This accounting burden, which subjects banks to the obligation of maintaining 1:1 cash reserves for the assets they hold on behalf of their clients, has been seen as a significant obstacle for traditional banks to offer cryptocurrency services.
However, in his speech, Munter outlined two scenarios in which a bank could be exempt from complying with SAB 121. First, he said, a bank holding company could receive “written approval” from its state prudential regulator, ensuring that cryptocurrency assets would be held “remotely” in the event of bankruptcy. Second, he said that brokers who do not hold the cryptographic keys to their clients’ assets could also be exempt from the regulation, provided they obtain legal backing confirming their status.
Galaxy Digital is bullish on crypto custody in the US
The digital asset and blockchain firm has welcomed Munter’s speech, interpreting it as a positive sign for the cryptocurrency sector. It stated that the clarity provided by the SEC could open the door for more banks to venture into cryptocurrency custody, which in turn could facilitate the adoption of digital assets by institutional investors.
Galaxy Digital also noted that the possibility of traditional banks offering custody services is a significant development for the growth and adoption of the crypto industry, as many investors, mainly institutional ones, still have more confidence in these banks than in native cryptocurrency platforms.
“Banks that wish to hold crypto assets and expressly fit the described fact pattern have a clear path to avoid SAB 121 accounting,” Galaxy Digital stressed, emphasizing that this path outlined by Munter, while not without its nuances, could also remove a major barrier that has existed for years for financial institutions to offer cryptocurrency services to a broader audience. The firm also emphasized that bank custody of cryptocurrencies could lead to an increase in investor confidence and, consequently, increased capital flow into the crypto ecosystem.
