Big Banks Lobby For Bitcoin ETF Role, Urge SEC Rule Change

A coalition of leading banking and financial institutions has formally petitioned the U.S. Securities and Exchange Commission (SEC), under the leadership of Chair Gary Gensler, seeking amendments to a regulatory guideline known as "SAB 121."

This guideline, established in March 2022, has significantly constrained the ability of banks to engage with the burgeoning digital currency market.

Impact Of Spot Bitcoin ETPs Approval

The coalition, including the Bank Policy Institute, the American Bankers Association, the Financial Services Forum, and the Securities Industry and Financial Markets Association, points out that the existing regulations have unintentionally excluded banks from the digital currency space, especially concerning Bitcoin Exchange-Traded Products (ETPs).

"As the two-year anniversary of the issuance of SAB 121 approaches, we believe now would be an appropriate time to examine and discuss the implications of SAB 121 for regulated banking organizations," the group mentioned in their letter to Gensler, marking the approval of Spot Bitcoin ETPs as a crucial turning point that necessitates regulatory adjustments.

Addressing Regulatory Concerns And Proposing Solutions

The coalition's main issue with SAB 121 is its on-balance sheet requirement, which they believe "negatively impacts U.S. banking organizations and investors due to the associated prudential implications."

This rule has effectively barred banks from providing scalable custodial services for digital assets. Additionally, they criticize SAB 121's broad definition of "crypto-asset" for limiting the use of distributed ledger technology (DLT) in documenting traditional financial assets.

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"The breadth of the definition of 'crypto-asset' in SAB 121 will have a chilling effect on banking organizations’ ability to develop responsible use cases for DLT more broadly," the letter states.

The banking groups are pushing for "targeted modifications to SAB 121" to participate in digital asset services without undermining the goals of investor protection and market integrity.

They suggest refining the definition of crypto-assets and exempting banking organizations from certain on-balance sheet treatments while maintaining disclosure requirements.

"We believe the recommendations set forth in this letter are consistent with those principles and would remove unintended barriers for well-regulated U.S. banking organizations to engage in certain activities," the coalition remarked, showing their readiness to work with the SEC on adjusting the regulatory framework for digital assets.

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Image created using artificial intelligence with MidJourney.