The U.S. Securities and Exchange Commission (SEC) has made a major policy change by introducing Staff Accounting Bulletin (SAB) 122 to replace the highly criticized SAB 121.
According to a January 23 update, this development will resolve regulatory challenges that previously hampered the crypto custody industry.
SAB 121
SAB 121, introduced under former SEC Chairman Gary Gensler, required companies offering crypto custody services to classify customer assets as liabilities on their balance sheets.
This move was criticized for creating unnecessary complexity and preventing banks and financial institutions from entering the crypto custody market. The policy was widely seen as a roadblock to the wider adoption of digital asset services.
At the time, efforts to repeal SAB 121 received bipartisan support but faced setbacks. Despite passing in both houses of Congress, former President Joe Biden vetoed the repeal bill, and a subsequent attempt to override the veto was unsuccessful.
SAB 122
The new SAB 122 effectively removes these controversial provisions and provides a more flexible framework.
Financial institutions can now adhere to established standards from the Financial Accounting Standards Board (FASB) or other international accounting guidelines.
The SEC also emphasized the importance of transparency and urged companies to provide information that helps investors understand how crypto held on behalf of others is protected.
According to the bulletin:
“An entity that has an obligation to protect crypto assets for others should determine whether an obligation related to the risk of loss should be included in such obligation, and if so, the measurement of such obligation, by the recording and measurement requirements. for obligations arising from contingencies in the Financial Accounting Standards Board Accounting Standards Codification.”
This policy change, introduced under President Donald Trump and acting SEC Chairman Mark Uyeda, represents a notable pivot toward fostering a more supportive regulatory environment for digital assets.
Community welcomes step
The introduction of SAB 122 has been welcomed by regulators and stakeholders in the crypto industry.
SEC Commissioner Hester Peirce, a longtime advocate for balanced crypto regulation, expressed her approval, reflecting the relief felt across the industry.
US lawmakers have also praised the move. House Financial Services Committee Chairman French Hill described the previous SAB 121 rule as out of sync with standard financial practices, while Senator Cynthia Lummis highlighted its damaging impact on innovation and banking.
Crypto leaders have noted that the removal of SAB 121 will likely impact how companies account for and disclose their holds.
MicroStrategy’s Michael Saylor noted that this shift allows banks to offer Bitcoin custody while navigating easier compliance requirements.
He wrote:
“SAB 121 has been repealed, allowing banks to take custody of Bitcoin.”
