The U.S. Securities and Exchange Commission (SEC) has introduced Staff Accounting Bulletin No. 122 (SAB 122), which replaces the controversial SAB 121 guidance for accounting practices related to custodial crypto assets.
The update provides regulated banks and financial institutions with more flexible accounting options, aiming to reduce barriers for offering crypto custody services.
Announcing the change on X, SEC Commissioner Hester Peirce remarked,
“Bye, bye SAB 121! It’s not been fun.”
Introduced in 2022, SAB 121 required companies holding crypto assets for customers to classify them as liabilities on their balance sheets. This policy created significant challenges for banks and financial institutions, increasing the cost and complexity of offering crypto custody services. Critics argued that the regulation stifled innovation and discouraged financial institutions from entering the crypto custody market, thereby limiting secure custody options for consumers.
Efforts to repeal SAB 121 gained momentum in 2024 when Representative Mike Flood introduced H.J. Res. 109 under the Congressional Review Act. The resolution passed both the House and Senate in May, showcasing bipartisan support to ease regulatory burdens. However, then-President Joe Biden vetoed the measure, citing concerns about weakening the SEC’s authority and increasing risks for investors.
The newly introduced SAB 122 offers a more practical framework. It allows banks and financial institutions to apply existing accounting standards for contingencies when assessing liabilities tied to custodied crypto assets. Instead of treating all custodied crypto as liabilities, institutions can classify potential losses as contingent liabilities, reducing the regulatory burden and opening the door for broader crypto custody adoption.
This shift makes it more feasible for banks to offer custody services for cryptocurrencies like Bitcoin while ensuring compliance with existing accounting rules.
Senator Cynthia Lummis, a strong advocate for crypto innovation, welcomed the change, stating,
“SAB 121 was disastrous for the banking industry, and only stunted American innovation and advancement of digital assets. I am THRILLED to see it repealed and get the SEC back on track to fulfilling its intended mission.”
Notably, Peirce, alongside Acting SEC Chairman Mark Uyeda, is leading the SEC’s new crypto task force, which seeks to establish a practical and proactive regulatory framework following the departure of former SEC Chair Gary Gensler.
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