Banking Giants Seek to Dominate Crypto Custody Through Regulatory Lobbying

Major U.S. banking trade groups are aggressively lobbying the SEC to restrict cryptocurrency custody services to traditional banks, framing the move as essential for investor protection. The Bank Policy Institute, Association of Global Custodians, and Financial Services Forum—representing $234 trillion in assets under custody—argue that only banks should qualify as "qualified custodians" for digital assets. Their September 18 letter dismisses self-custody solutions and crypto-native firms, despite their pivotal role in driving blockchain innovation.

Critics view this as a brazen attempt at regulatory capture, with banks leveraging their political influence to impose barriers competitors cannot meet. The irony is palpable: these institutions, which once dismissed cryptocurrencies as a fringe technology, now position themselves as the "gold standard" for custody—despite their reliance on a $700 billion taxpayer bailout during the 2008 financial crisis.

The banking groups oppose granting qualified custodian status to crypto-native trust companies, citing failures like Prime Trust while conveniently ignoring their own systemic risks. This strategy mirrors classic regulatory playbooks: invoking safety rhetoric, demanding compliance standards that price out rivals, and offering to co-write the rules themselves.

The outcome of this battle will shape the next generation of financial infrastructure. A win for banks could bottleneck innovation through legacy gatekeepers. Conversely, if regulators resist, crypto-native firms may gain breathing room to compete on their strengths: technological agility and decentralized solutions.