SEC Leans on Crypto Firms to Report Assets Held for Customers

(Bloomberg) -- The U.S. Securities and Exchange Commission is pressing firms to account for crypto assets they're holding on behalf of customers on their balance sheets. 

A growing number of trading platforms are safeguarding digital assets for their users and maintaining the cryptographic keys necessary to access the tokens, the regulator said in staff guidance Thursday. However, they aren't always disclosing those activities to investors even though they can lead to financial loss if the assets are stolen or misused, an SEC official said on a call with reporters. 

The guidance -- issued as a Staff Accounting Bulletin -- clarifies how the agency expects companies to apply existing accounting standards to digital assets. The Financial Accounting Standards Board has said it would consider providing specific rules for reporting cryptocurrencies and other types of tokens, but that clarity could be years away. The SEC document offers a quick way to fill that gap, providing investors with more consistent reporting across issuers. 

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While such guidance doesn't carry the legal weight of a rule, it's closely followed by industry.

Even though crypto firms are currently the ones primarily offering these services, the new guidelines would also apply to any banks or other financial institutions that enter into this space, the SEC official told reporters. 

There are unique risks and uncertainties associated with safeguarding digital currencies that aren't present with other asset classes, including lack of legal precedent should any fraud or loss lead to a battle in court and fewer regulatory requirements, according to the SEC.

Hester Peirce, the agency's lone Republican commissioner who's known for her pro-crypto views, blasted the guidance. She said in a statement that it's another example of the SEC's “scattershot and inefficient approach to crypto.” The regulator “has refused” to clarify how to apply its own rules to crypto assets, contributing to the risks that it now uses to justify new accounting treatment, Peirce added.

Under the guidance, crypto trading platforms should assume the liability of holding their customers' assets -- similar to indemnifying assets involved in a business combination -- and report both the obligation and corresponding asset, figures that would fluctuate over time based on their current market value, the SEC said. 

Companies would need to begin relying on the guidance for quarters or fiscal years that end in June.

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