Providing custody at scale and supporting prudent regulation at Anchorage Digital

Anchorage Digital Bank N.A. is the only federally-chartered bank not impacted by Staff Accounting Bulletin No. 121 (SAB 121), allowing us to provide industry-leading custody at scale to institutional clients across the crypto ecosystem. The goal of SAB 121—to ensure that investors are informed about the risks involved in the custody of digital assets—is important. However, its effect is to hinder the development of digital asset custody solutions, ultimately harming consumers and preventing digital assets from achieving mainstream adoption. For these reasons, we are calling for its withdrawal or repeal.

Anchorage Digital Bank is federally regulated by the US national bank regulator—the Office of the Comptroller of the Currency (OCC). We provide safe and secure custody of digital assets at scale under the terms of our federal banking charter, subject to stringent capital, bankruptcy remoteness, compliance, security, and other regulatory requirements. However, unlike other federally-chartered banks, Anchorage Digital Bank is not an SEC reporting company, and therefore not governed by SEC staff interpretations and practices in administering the disclosure requirements of the federal securities laws, including SAB 121. 

SAB 121 seeks to ensure that investors are informed about the risks unique to the custody of digital assets. As the SEC correctly notes in its bulletin, when entities custody digital assets on behalf of customers, these arrangements present unique technological, legal, and regulatory risks not present in safeguarding non-crypto assets. Rather than foster the development of safe custody solutions that address these risks, however, the rule has the effect of hindering the development of this critical infrastructure, ultimately harming consumers and the industry as a whole. That is why we have consistently advocated for an alternative approach that would provide more pathways for both retail and institutional customers to gain access to the safe custody of their digital assets. In our comment letter to the SEC last year, we explained that “[b]ecause SAB 121 limits the ability of certain well-regulated US banks to scale their digital asset custody services, we request that the SEC revoke and replace this staff bulletin with a more workable alternative that better accomplishes the bankruptcy protections that were undoubtedly its original intent.” 

We think there is a better way. Instead of shutting down innovation, the SEC should engage with its fellow regulators and the industry to promote the development of safe, regulated solutions for digital asset custody, as it has done in the past. For example, in a 2019 Joint Statement on Broker-Dealer Custody of Digital Asset Securities, the SEC and FINRA noted how the application of the federal securities laws to the custody of digital assets presented novel and complex regulatory and compliance issues, such as the ability of a custodian to protect against theft or loss of private keys, irreversible transfers, and to ensure the return of customer assets in the event of bankruptcy. But the staff also conveyed a willingness to consider industry solutions that were workable but effective, finding “these discussions to be very informative” and expressing appreciation for “market participants’ ongoing engagement on these issues.” Likewise, in a 2021 statement and request for comment regarding the custody of digital asset securities by broker-dealers, the staff welcomed industry input on novel questions such as how a digital asset custodian might detect and defend against malicious attacks such as a 51% attack, or respond in the event of a hard fork, airdrop, or protocol upgrade. At the time, Anchorage Digital heeded that call, submitting a comment letter that shared our expertise and recommendations, just as we did more recently in response to the SEC’s safeguarding rule. Both times, our goal was the same: to promote responsible innovation and advance the industry.

Having worked for the past seven years to provide our clients a custody solution that meets the highest technological and regulatory standards, Anchorage Digital understands the unique challenges of digital asset custody as well as anyone, and the SEC is right to make sure that customers and investors are informed of the risks. However, we cannot support a rule that not only fails to directly address these risks, but has the effect of stifling the development of safe custody solutions, ultimately harming consumers and the industry. SAB 121 should be withdrawn or repealed, and the SEC should renew its engagement with the industry and other regulators to balance the issues of disclosure, risk-based capital adequacy, bankruptcy remoteness, and operational controls to foster the development of this critical area of digital asset infrastructure.