Crypto News– Several US banking groups are advocating for their inclusion in the Bitcoin exchange-traded funds (ETFs) market, prompting a call for a rule change to facilitate their involvement.
US Banking Groups Call on SEC to Amend Regulations for Entry into Bitcoin ETF Space
In a letter dated Feb. 14 addressed to SEC Chair Gary Gensler, a coalition consisting of the Bank Policy Institute, the American Bankers Association, the Securities Industry and Financial Markets Association, and the Financial Services Forum presented their case. The coalition urged the SEC to reevaluate a regulation that imposes significant costs on traditional banks offering crypto custody services. Under current rules, these financial institutions must treat cryptocurrencies as liabilities on their balance sheets. Consequently, banks are required to allocate assets equivalent to the value of crypto holdings to mitigate potential losses and comply with strict regulatory capital requirements.
The coalition argued that this regulation impedes their ability to serve as custodians for newly introduced Bitcoin ETFs, a role they commonly fulfill for most other Exchange-Traded Products (ETPs). They attributed this limitation to factors such as the “Tier 1 capital ratio and other reserve and capital requirements.”
The coalition emphasized:
“If regulated banking organizations are effectively prevented from providing digital asset safeguarding services at scale, investors and customers, and ultimately the financial system, will be worse off, with the market limited to custody providers that do not afford their customers the legal and supervisory protections provided by federally-regulated banking organizations.”
Additionally, the group highlighted the importance of mitigating the concentration risk posed by a single non-bank entity dominating custodial services for Bitcoin ETFs. They proposed that allowing prudentially regulated banks to offer custodial services for SEC-regulated ETFs, similar to qualified non-bank asset custodians, could address this concern.
The letter referenced Coinbase, the largest US-based crypto trading platform, as the unnamed non-bank entity. Coinbase currently serves as the asset custodian for eight ETF issuers.
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