Reuters reports major US banks pausing crypto lending plans amid challenging SEC guidelines

The US Securities and Exchange Commission (SEC) guidance on crypto custody might impede banks from the industry because of the cost of implementation, Reuters reported on Sept. 16.

According to the report, the SEC accounting guidelines stated that public companies holding crypto assets on behalf of their clients must account for such assets as liabilities because of the high level of risks associated with the industry.

That guidance, however, poses a major problem for banks looking to offer crypto custody services.

Banking regulations include strict capital rules, which require banks to hold cash against all liabilities on their balance sheets.

Banks trying to offer crypto custodial services for their clients would need more cash at hand as the crypto assets will be reported as liabilities. That might prove too costly for many of these banks, forcing them to suspend their plan of crypto product offerings.

So far, banks like Bancorp and State Street are reconsidering their digital assets offering due to the costs.

Head of State Street Digital, Nadine Chakar, said:

“We do have an issue with the premise of doing that because these are not our assets. This should not be on our balance sheet.”

A Bancorp spokesperson revealed that the bank has stopped accepting new customers for its crypto custodial services due to regulatory requirements.

Reuters, citing anonymous sources, said the SEC did not consult banking regulators before issuing the guidance with one source stating,

“Lenders building out crypto offerings have had “to cease moving forward with those plans pending any kind of further action from the SEC and the banking regulatory agencies.”

While the SEC has tried to justify its guidance several times, stakeholders like US Representative Trey Hollingsworth, American Bankers Association, the Bank Policy Institute, and the Securities Industry and Financial Markets Association have questioned it.

According to the lenders, the SEC is using its guideline to prevent banks from getting involved in crypto custodial services.