Three major federal bank regulatory agencies issued a joint statement warning banks about the risks associated with taking custody of cryptocurrency assets. While the statement does not impose new regulations on crypto custody, it signals a significant shift—indicating that the federal government is now fully engaged on this issue, a notable departure from the previous administration’s stance.
The statement, issued by the Federal Deposit Insurance Corporation, the Federal Reserve, and the Office of the Comptroller of the Currency, reiterates that existing risk management principles apply to the safekeeping of crypto assets and reminds banks of their obligation to comply with applicable laws and regulations. It also clarifies that banks may provide safekeeping services for crypto assets, whether in a fiduciary or non-fiduciary capacity.
The statement highlights the legal and compliance risks related to crypto assets, especially concerning anti-money laundering and the Bank Secrecy Act. It calls on institutions to carefully assess operational, legal, and technological risks before launching crypto-related services. The regulators also emphasize the importance of employee training, stating that all personnel involved in crypto asset safekeeping must have adequate knowledge and understanding of the associated risks and requirements.
The Legacy of SAB 121
The statement marks the final rollback of a previous SEC rule, Staff Accounting Bulletin 121, that had limited financial institutions from holding crypto directly. That rule required banks maintaining custody of crypto to record those holdings on their own balance sheets.
The requirement originated from a staff bulletin intended as guidance on existing accounting standards, but many lawmakers viewed it as regulatory overreach. It led Senator Cynthia Lummis, (R-Wyo.), a crypto supporter, to describe SAB 121 as “a rule under the administrative procedure act, disguised as an accounting guidance.”
ETFs Raise the Issue
Despite the restriction, banks continued offering crypto custody services, and by mid-2024, U.S. banks collectively held nearly $16 billion in digital assets. The issue gained further prominence following the introduction of exchange-traded funds in early 2024. Since SAB 121 deterred banks from holding bitcoin, those assets were concentrated in a small number of institutions. Overturning the rule opens the door for more banks and other organizations to hold digital assets directly.
Last year, the Senate voted in a bipartisan effort to overturn the rule, though President Biden opposed the new regulation. SAB 121 was eventually rescinded just four days after President Trump took office. Shortly after, the SEC published SAB 122, stating that institutions should assess the risk of loss associated with crypto custody and record that amount as a contingent liability on their balance sheet.
