FDIC Vice Critiques SEC’s Crypto Guide, Cites Major Concern

FDIC Vice Chair Criticizes SEC’s Crypto Guidelines, Raises Concerns

Travis Hill, the Vice Chair of the Federal Deposit Insurance Corporation (FDIC), recently voiced significant criticism of the Securities and Exchange Commission’s (SEC) accounting guidelines for cryptocurrencies. Hill expressed his concerns during a speech at a tokenization-focused event organized by the Mercatus Center. His critique focused on the SEC’s Staff Accounting Bulletin (SAB) 121, which mandates that firms recording custody of cryptocurrencies must list the crypto holdings as liabilities on their balance sheets.

Hill highlighted that SAB 121 deviates from traditional custodian accounting practices, which have historically excluded custodial assets from balance sheets and treated them as the customers’ own assets. This treatment ensures clear ownership rights and financial liability. The Vice Chair noted that this change in accounting treatment could impact banks’ willingness and ability to offer custody services for digital assets, raising fears within the cryptocurrency community about the banking sector’s involvement with cryptocurrencies.

In addition, Hill discussed the potential implications of the SEC’s bulletin on spot bitcoin exchange-traded funds (ETFs) that the SEC had previously approved. He argued that some legislators believe this announcement could prevent banks from acting as custodians for such ETFs, limiting investors’ access to secure and regulated custody services. Hill expressed skepticism about allowing a single crypto exchange to dominate custody services for approved bitcoin ETFs while excluding highly regulated banks from the market.

Furthermore, Hill criticized the SEC’s broad definition of crypto assets, which could cover tokenized versions of real-world assets. He called for the regulator to provide more clarity and specificity in its regulatory guidance and emphasized the importance of soliciting public comments before issuing major policy directives to achieve balanced and effective regulations.

The controversy surrounding SAB 121 has led to legislative efforts to nullify the bulletin. The House Financial Services Committee recently voted in favor of a resolution to this effect, indicating bipartisan concern over the implications of the bulletin. This legislative action follows a statement from the Government Accountability Office, which recommended that Congress review the bulletin before its implementation.

Hill’s critique reflects the growing demand for regulatory transparency and cautious integration of digital assets into the traditional banking system. He emphasized the need to understand the impact of disruptive technologies like blockchain and distributed ledger technology on banking and financial services. The call for regulators to strike a balance between innovation, consumer protection, and financial stability persists.