Here is the latest update on the SEC’s new reporting guidance for digital asset custody firms.
Frequently Asked Questions
Here is a list of FAQs regarding the SECs new reporting guidance for companies holding digital assets for clients tailored for both beginners and advanced readers
General Definition Questions
1 What exactly is the new guidance from the SEC
Its a new rule that tells companies like banks and brokerages exactly how to list crypto they hold for their customers on their financial reports
2 Why is the SEC getting involved in this
The SEC wants to make sure investors know the risks If a company holding your Bitcoin goes bankrupt you might lose your crypto The SEC wants these companies to be transparent about that risk on their balance sheets
3 Does this mean the SEC now considers Bitcoin a security
No This guidance is about how to account for the asset not whether the asset is a security It applies to all digital assets including Bitcoin and Ether regardless of their legal classification
4 What does safeguarding mean in this context
It means holding the private keys or the actual crypto on behalf of a client If you hold your own coins in your own wallet this rule doesnt apply to you
The Core Accounting Rule
5 How does this guidance change how companies report crypto
Previously companies could list these assets as offbalance sheet Now they must list the crypto they hold for clients as a liability on their own balance sheet and also record an equivalent asset
6 Why do they have to record it as both an asset and a liability
This is the weird part of the rule Its designed to reflect that if the company loses the crypto they owe the client that value By putting it on their balance sheet they are essentially saying We owe this to our clients and we are holding an asset to cover that debt
7 Does this mean the crypto is now owned by the company
No Its still the clients property But the accounting treatment makes it look like the company owns it for reporting purposes This is why many banks find it burdensomeit inflates their balance sheet with assets they dont actually control