US crypto guidelines push up costs for lenders, disrupting projects

WASHINGTON: Banks' cryptocurrency projects have been upended by U.S. Securities and Exchange Commission (SEC) accounting guidance that would make it too capital-intensive for lenders to hold crypto tokens on behalf of clients, according to more than half a dozen people with knowledge of the matter.

A slew of lenders including US Bancorp, Goldman Sachs Group Inc , JPMorgan Chase & Co , BNY Mellon , Wells Fargo & Co , Deutsche Bank, BNP Paribas (BNPP.PA) and State Street Corp offer or are working on crypto products and services for clients in a bid to tap in to the $1 trillion crypto market, according to their public statements and media reports.

But on March 31, the SEC said public companies that hold crypto assets on behalf of clients or others must account for them as liabilities on their balance sheets due to their technological, legal and regulatory risks.

While the guidance applies to all public companies, it is especially problematic for banks because their strict capital rules, overseen by bank regulators, require them to hold cash against balance sheet liabilities. The SEC did not consult the banking regulators when issuing the guidance, according to four of the people.