Re: Update on Efforts to Implement Staff Accounting Bulletin No. 121 “Accounting for Obligations to Safeguard Crypto-Assets an Entity Holds for its Platform Users” (“SAB 121”)
The Securities Industry and Financial Markets Association (“SIFMA”) and the American Bankers Association (“ABA”) appreciated the opportunity to speak with the Securities and Exchange Commission’s (“SEC”) Office of the Chief Accountant (“OCA”) and Division of Corporation Finance (collectively, the “Staff”) on June 3, 2022 regarding SAB 121 and our request to defer its effective date. As discussed, our member firms are working diligently across various functions to bring to the Staff well-developed fact patterns for analysis – whether individually, through the SIFMA and ABA Accounting Committees or through the Association of International Certified Professional Accountants Digital Asset Working Group (“DAWG”) – but this very time-consuming process is on-going.
Another example of using blockchain technology to effect transactions involves the tokenization of repurchase (“repo”) and securities borrow-pledge transactions. Focusing on the former and similar to the concept discussed above, blockchain technology is used to define tokens for (1) cash held in a segregated account and (b) an underlying security, such as a US Treasury, held in another segregated account. An exchange of such tokens is representative of an exchange of cash and collateral and, therefore, blockchain acts as a new set of rails on which cash and collateral are moving. For example, in the case of cash, rather than needing to instruct cash movements via the SWIFT network and local payment systems, parties can simply exchange tokens representative of the underlying cash. It is important to note that neither cash tokens nor collateral tokens are a form of cryptocurrency, the primary difference being that the tokens are a representation of the assets only and where the use of blockchain technology does not change the legal rights, characteristics or form of the underlying assets itself’. Further, the transactions remain subject to standard Master Repurchase Agreement terms and conditions.
The full letter is available at https://www.sifma.org/wp-content/uploads/2022/06/SIFMA-ABA-SAB-121-Follow-Up-Letter-to-SEC.pdf