US crypto-friendly approach pushes banks into massive exploration as Citibank and State Street set to launch crypto custody services. The US Securities and Exchange Commission’s (SEC) recent decision to repeal the accounting bulletin, SAB 121, is said to have influenced this move.
Two renowned banks – State Street and CitiBank are reported to be launching crypto custody services, as noted in our last news piece. Citibank, which recently completed proof of concept (PoC) on tokenizing private funds, is currently the third largest bank in the US with Assets Under Management (AUM) of $2.14 trillion. State Street also appears as one of the largest custody banks for traditional assets like stocks and bonds. According to our research, it has $44 trillion in assets.
This decision comes following reports that the US Securities and Exchange Commission (SEC) has finally canceled a controversial accounting bulletin, SAB 121. As mentioned in our previous news brief, SAB 121 demanded that companies that hold cryptos for customers extensively indicate the liability and corresponding assets in their balance sheet.
The crypto industry strongly opposed this proposal due to the prohibitive costs associated with its compliance. Sen. Chuck Schumer, D-N.Y., and other lawmakers also opposed it after its implementation was found to violate congressional processes.
State Street’s groundbreaking crypto custody move, which has been scheduled for next year, also includes transfer agency services. According to Chief Product Officer Donna Milrod, the services would include helping clients use tokenized assets as collateral. Starting next year, State Street will onboard clients in batches.
Challenges Faced by Citibank and State Street Amidst Coinbase’s Potential Involvement
According to our research, Coinbase is also in discussion with financial institutions to deliver trading options and custody management. Meanwhile, experts believe that the initiatives of banks are hindered by some challenges. Firstly, banks would need approval from the Federal Reserve (Fed) and the New York Department of Financial Services (NYDFS) before they can start operations.
Additionally, banks must meet the government-imposed capital requirements. Specifically, a specific capital requirement needs to be maintained to prove the readiness to handle some expected risks.
Amid the backdrop of this, Citibank has unveiled the CIDAP digital asset platform to provide crypto-safeguarding technology to clients. Additionally, it has explored a pilot program for tokenizing private markets.
Recently, U.S. Federal Reserve Chair Jerome Powell, at the FOMC meeting, gave a thumbs up to the US bank’s involvement in crypto. According to him, these banks are capable of serving crypto customers provided they comply with the risk disclosure requirements.
Before this, Powell had highlighted that Bitcoin was directly competing with gold rather than the US Dollar. As explained in our last report, he pointed out that the asset is not used as a store of value or medium of exchange due to its volatile nature.
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