The SEC has disrupted banks’ crypto custody projects, underscoring the current climate of regulatory scrutiny, skepticism, and uncertainty. 

SEC accounting guidance from earlier this year is wreaking chaos on banks’ crypto custody plans, according to a new report from Reuters. By requiring public companies to account for clients’ crypto assets as liabilities on their own balance sheets, the SEC has made it extremely capital-intensive for banks to offer custody services.  

Both State Street and BNY Mellon have had projects disrupted, according to Reuters, with a State Street representative saying that the bank takes “issue with the premise” of the SEC guidance because clients’ crypto holdings are not its assets and “should not be on our balance sheet.” A US Bancorp spokesperson said the bank is “pausing intake of additional clients” for its bitcoin custody service as it evaluates the “evolving regulatory environment.”  

Some banks had previously seen custody services as a safe way to dip their toes into cryptocurrencies and satisfy burgeoning client demand, and the SEC’s move complicates these efforts.  

Read the entire Reuters’ report here.