February 14, 2024
The Honorable Gary Gensler
Chair
U.S. Securities and Exchange Commission
100 F Street NE
Washington, D.C. 20549
Dear Chair Gensler:
The Bank Policy Institute (“BPI”), the American Bankers Association (“ABA”), the Financial Services
Forum (“the Forum”), and the Securities Industry and Financial Markets Association (“SIFMA”)
(collectively, the “Associations”
1
) write to request that the Securities and Exchange Commission
(“Commission”) consider targeted modifications to Staff Accounting Bulletin No. 121 (“SAB 121”) to
address recent policy developments and the challenges that SAB 121 has posed for U.S. banking
organizations since it was issued on March 31, 2022.
2
As the two-year anniversary of the issuance of SAB 121 approaches, the Associations believe now
would be an appropriate time to examine and discuss the implications of SAB 121 for regulated
banking organizations.
3
There have been several relevant developments during this two year period,
including the GAO report issued in October,
4
approval of certain Spot Bitcoin ETPs,
5
and the SEC’s
proposed rule on Safeguarding Advisory Client Assets that would cover the custody of digital assets if
finalized as proposed.
6
The Associations believe that SAB 121 can be modified to mitigate the
specific challenges identified herein without undermining the stated policy objectives of the
1
More informaon about the Associaons is available in Appendix A.
2
Sta Accounng Bullen No. 121, Securies and Exchange Commission (March 31, 2022) (link). SAB 121
includes interpreve quesons addressing: (i) How covered enes should account for their obligaons to
safeguard crypto-assets held for plaorm users (the “on-balance sheet requirements”), (ii) what disclosures
sta would expect in those circumstances (“the disclosure requirements”), and (iii) when the guidance in SAB
121 should be applied to nancial statements.
3
For purposes of this leer, the term “banking instuon” should also be taken to include securies broker-
dealers that are regulated by the SEC. SAB 121 impacts regulated broker-dealers as a result of the net capital
rule (15c3-1), which treats the on-balance sheet items as non-allowable assets.
4
GAO: “Securies and Exchange Commission—Applicability of the Congressional Review Act to Sta
Accounng Bullen No. 121,” File B-334540 (Oct. 31, 2023) (link).
5
See Order Granng Accelerated Approval of Proposed Rule Changes, as Modied by Amendments Thereto, to
List and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust Units, Securies Exchange Act Release
No. 34-99306 (Jan. 10, 2024) (link).
6
SEC Release No. IA-6240, 88 FR 14,672 (March 9, 2023) (link).
Chair of the U.S Securities
and Exchange Commission -2- February 14, 2024
Commission to enhance the information received by investors and other users of financial
statements.
The Associations are happy to continue to serve as a resource and work collaboratively with the
Commission to provide recommendations that would ensure that investors are provided the
requisite disclosures while allowing responsible innovation to occur. The Associations and
Commission share the common goals of ensuring the highest levels of investor protection and
implementing policies that advance principles of market integrity and financial stability.
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. Below we describe the drivers behind this request and suggest targeted modifications to
SAB 121.
I. Background
Since SAB 121 was issued in 2022, the Associations have articulated their concerns regarding the
Bulletin to the Commission both in writing and in meetings with Commission staff.
7
The foremost
concern identified and discussed is how the on-balance sheet requirement of SAB 121 negatively
impacts U.S. banking organizations and investors due to the associated prudential implications. The
Associations have underscored that on-balance sheet treatment will preclude highly regulated
banking organizations from providing a custodial solution for digital assets at scale. Moreover, the
Associations have highlighted that the on-balance sheet requirement, coupled with the overly-broad
definition of “crypto-asset” in SAB 121, will have a chilling effect on banking organizations’ ability to
develop responsible use cases for distributed ledger technology (DLT) more broadly.
8
U.S. banking organizations’ experience over the past two years has confirmed that SAB 121 has
curbed the ability of the Associations’ members to develop and bring to market at scale certain
digital asset products and services. In comparison, in-scope entities of SAB 121 other than U.S.
banking organizations have not suffered the same effects. For example, digital asset custodial
services are currently offered by various non-banking organizations, thereby keeping activity outside
the prudential perimeter and avoiding the necessary oversight by regulators. Indeed, if regulated
banking organizations are effectively precluded 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. The Associations continue to
urge the Commission to work with industry to adopt solutions that could mitigate the described
challenges.
II. Concrete Examples of the Impact of SAB 121 on U.S. Banking Organizaons
The Associations highlight two specific examples of the negative impact of SAB 121 on banking
organizations, investors, and the financial ecosystem:
7
See leer from ABA, BPI, and SIFMA re: SAB 121 to the Oce of the Chief Accountant of the SEC, the OCC, the
FDIC, the Federal Reserve Board, and the Department of the Treasury (June 23, 2022) (link); leer from ABA
and SIFMA re: request for deferral of eecve date of SAB 121 to the Oce of the Chief Accountant of the SEC
(May 27, 2022) (link); leer from ABA and SIFMA re: Update on Eorts to Implement SAB 121 to the Oce of
the Chief Accountant of the SEC (June 27, 2022) (link).
8
SAB 121 denes a “crypto-asset” as “a digital asset that is issued and/or transferred using distributed ledger
or blockchain technology using cryptographic techniques.”
Chair of the U.S Securities
and Exchange Commission -2- February 14, 2024
(1) Spot Bitcoin ETPs: The Commission recently approved 11 Spot Bitcoin ETPs,
9
allowing investors
access to this asset class through a regulated product. However, notably absent from those
approved products are banking organizaons serving as the asset custodian, a role they regularly
play for most other ETPs. These ETPs have already experienced billions of dollars in inows, but
it is praccally impossible for banks to serve as custodian for those ETPs at scale due to the Tier 1
capital rao and other reserve and capital requirements that result from SAB 121. This raises
important quesons about the safety and stability of this ecosystem. We believe that this result
could raise concentraon risk, as one nonbank enty now serves as the custodian for the
majority of these ETPs. That risk can be migated if prudenally regulated banking organizaons
have the same ability to provide custodial services for Commission regulated ETPs as qualied
nonbank asset custodians. SAB 121 does not appear to contemplate this type of concentraon
risk, in part perhaps because Spot Bitcoin ETPs or similar products were not an approved product
at the me SAB 121 was issued.
(2) Use of DLT to record tradional nancial assets: Banking organizaons are increasingly exploring
the use of DLT to record tradional nancial assets, such as bonds. The use of DLT has the
potenal to expedite and automate payment, clearing, reconciliaon and selement services,
and mulple central banks outside the United States are partnering with banks to explore the
adopon of DLT. However, SAB 121 has proven to be a barrier to banking organizaons’ ability to
meaningfully engage in DLT-based projects due to the breadth of the denion of “crypto-asset”
in SAB 121: “a digital asset that is issued and/or transferred using distributed ledger or
blockchain technology using cryptographic techniques.”
10
Under this denion, a tradional
nancial asset issued or transferred using DLT could be considered a “crypto asset” and thus
within scope of SAB 121, regardless of the applicable risks. SAB 121 makes no disncon
between asset types and use cases, but instead generally states that crypto-assets pose certain
technological, legal, and regulatory risks requiring on-balance sheet treatment. However, there
are signicant dierences between a cryptocurrency like Bitcoin that exists on a public,
permissionless network versus a tradional nancial instrument that is recorded on a blockchain
network where access is controlled and transacons can be cancelled, corrected, or amended.
The past two years have underscored these dierences, as the turmoil in the crypto market has
been wholly unrelated to banks’ use of permissioned DLT. DLT does not change the underlying
nature or risks of tradional assets, nor do they present the risks SAB 121 purports to address,
and thus SAB 121’s applicaon to those assets should be reconsidered. Clear indicaon from the
Commission that the use of DLT to record or transfer tradional nancial assets is consistently
outside the scope of SAB 121 would alleviate associated challenges.
III. Proposed Modicaons and Claricaons
The Associations request that the Commission consider the following targeted modifications to SAB
121 to address the above concerns:
• Narrow the denion of “crypto-assets” to clarify and conrm the exclusion of certain asset types
and use cases. SAB 121 is premised on the risks posed exclusively by cryptocurrencies, and
tradional nancial assets recorded or transferred using blockchain networks should be
excluded because they do not present the same risks as cryptocurrencies; the use of DLT does
9
See Order Granng Accelerated Approval of Proposed Rule Changes, as Modied by Amendments Thereto, to
List and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust Units, Securies Exchange Act Release
No. 34-99306 (Jan. 10, 2024) (link).
10
SAB 121 (link), note 3.
Chair of the U.S Securities
and Exchange Commission -2- February 14, 2024
not change the underlying nature or risk of tradional assets. Moreover, certain exclusions for
products wherein the underlying acvity relates to the oering of a Commission-approved
product should be claried.
• Exempt banking organizaons from on-balance sheet treatment but maintain the disclosure
requirements: As described previously, SAB 121 answers three quesons, and the Associaons’
and its members’ are primarily concerned with the rst queson: how an enty should account
for its obligaons to safeguard crypto-assets (the on-balance sheet treatment). We do not object
to the requirements imposed in the answer to the second queson (disclosures in nancial
statements). Exempng banking organizaons from the on-balance sheet treatment but
requiring them to make certain disclosures about their digital acvity would migate the
concerns raised by banking organizaons without undermining the goal of SAB 121 to promote
disclosures to investors. Balance sheet disclosure may be appropriate where the controls are not
adequate to protect investors from the risk of custodied assets, which is not the case for banking
organizaons that are subject to robust oversight from the federal banking agencies. The
required disclosures in the answer to the second queson are broad and may include disclosures
in the descripon of business, risk factors, and management’s discussion and analysis of nancial
condion and results of operaon, and such informaon will sll “enhance the informaon
received by investors and other users of nancial statements about these risks, thereby assisng
them in making investment and other capital allocaon decisions.”
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IV. Conclusion
The Associations and their members appreciate your attention to the issues raised in this letter.
Given the upcoming two-year anniversary of the issuance of SAB 121, certain policy developments,
the experience of U.S. banking organizations, and the evolution in technology since the guidance
was first issued, we believe it is an appropriate time to reflect on the intended goals of SAB 121. We
request a meeting with you and Commission staff to discuss the issues and proposed modifications
set forth above.
We appreciate the Commission’s attention to this important topic and look forward to engaging with
you further. If you have any questions, please contact Paige Pidano Paridon at
paige.paridon@bpi.com or 703-887-5229.
Respectfully submitted,
Bank Policy Institute
American Bankers Association
Financial Services Forum
Securities Industry and Financial Markets Association
cc: The Honorable Hester M. Peirce, Commissioner
The Honorable Caroline A. Crenshaw, Commissioner
The Honorable Mark Uyeda, Commissioner
The Honorable Jaime Lizárraga, Commissioner
11
SAB 121 (link).
Chair of the U.S Securities
and Exchange Commission -2- February 14, 2024
Appendix A
The American Bankers Association is the voice of the nation’s $23.4 trillion banking
industry, which is composed of small, regional and large banks that together employ approximately
2.1 million people, safeguard $18.6 trillion in deposits and extend $12.3 trillion in loans.
The Bank Policy Institute is a nonpartisan public policy, research, and advocacy group,
representing the nation’s leading banks. Our members include universal banks, regional banks and
the major foreign banks doing business in the United States. Collectively, they employ nearly 2
million Americans, make nearly half of the nation’s bank-originated small business loans and are an
engine for financial innovation and economic growth.
The Financial Services Forum is an economic policy and advocacy organization whose
members are the chief executive officers of the eight largest and most diversified financial
institutions headquartered in the United States. Forum member institutions are a leading source of
lending and investment in the United States and serve millions of consumers, businesses, investors,
and communities throughout the country. The Forum promotes policies that support savings and
investment, financial inclusion, deep and liquid capital markets, a competitive global marketplace,
and a sound financial system.
The Securities Industry and Financial Markets Association is the leading trade association
for broker-dealers, investment banks, and asset managers operating in the U.S. and global capital
markets. On behalf of our industry’s nearly 1 million employees, we advocate on legislation,
regulation, and business policy affecting retail and institutional investors, equity and fixed income
markets, and related products and services. We serve as an industry coordinating body to promote
fair and orderly markets, informed regulatory compliance, and efficient market operations and
resiliency. We also provide a forum for industry policy and professional development. SIFMA, with
offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial
Markets Association.
