The US Securities and Exchange Commission (SEC) recently announced a major policy change with the introduction of Staff Accounting Bulletin (SAB) 122, replacing the controversial SAB 121. This shift is expected to address regulatory challenges that have hindered the growth of the crypto custody sector.
SAB 121, which was implemented under former SEC Chair Gary Gensler, mandated that firms offering crypto custody services classify customer assets as liabilities on their balance sheets. This requirement was heavily criticized for its complexity and for discouraging banks and financial institutions from entering the crypto custody market. Many in the industry viewed SAB 121 as a barrier to the wider adoption of digital asset services.
Efforts to repeal SAB 121 faced obstacles despite bipartisan support, with former President Joe Biden vetoing the repeal bill and subsequent attempts to override the veto falling short. However, the introduction of SAB 122 marks a significant departure from the previous policy.
Under SAB 122, financial institutions are now able to adhere to established standards from the Financial Accounting Standards Board (FASB) or other international accounting guidelines. The SEC has emphasized the importance of transparency, urging firms to provide disclosures to help investors understand how crypto assets held on behalf of others are safeguarded.
The bulletin states, “An entity that has an obligation to safeguard crypto-assets for others should determine whether to recognize a liability related to the risk of loss under such an obligation, and if so, the measurement of such a liability, by applying the recognition and measurement requirements for liabilities arising from contingencies in Financial Accounting Standards Board Accounting Standards Codification.”
This policy shift, introduced under the leadership of President Donald Trump and acting SEC Chair Mark Uyeda, signals a more supportive regulatory environment for digital assets.
The introduction of SAB 122 has been widely praised by regulators and industry stakeholders. SEC Commissioner Hester Peirce, a vocal advocate for balanced crypto regulation, has expressed her approval of the new policy. US lawmakers, including House Financial Services Committee Chair French Hill and Senator Cynthia Lummis, have also lauded the move, citing the detrimental impact of SAB 121 on innovation and banking practices.
Cryptocurrency industry leaders have noted that the removal of SAB 121 is likely to influence how companies account for and disclose their custodial obligations. Michael Saylor of MicroStrategy remarked on the implications for banks offering Bitcoin custody, stating, “SAB 121 has been rescinded, allowing banks to custody Bitcoin.”
Overall, the introduction of SAB 122 represents a positive step towards creating a more conducive regulatory environment for the crypto custody sector, paving the way for increased innovation and adoption within the industry.
