On January 23, 2025, the U.S. Securities and Exchange Commission (SEC) repealed the controversial guidance known as SAB 121, which previously required financial institutions to record cryptocurrencies held in custody as liabilities on their balance sheets. This decision marks a significant turning point in the regulation of digital assets and could have far-reaching implications for the crypto industry.
What is SAB 121?
Staff Accounting Bulletin No. 121 (SAB 121) was issued by the SEC in March 2022. This guidance mandated that companies holding cryptocurrencies for their clients record these holdings as liabilities on their balance sheets. At the same time, they were required to show corresponding assets of equal value. The rationale behind this policy was the heightened risks associated with crypto custody, including technological, legal, and regulatory uncertainties.
Example for Clarification:
Imagine a bank holding $100 million worth of Bitcoin on behalf of its clients. Under SAB 121, the bank was required to report the $100 million as both an asset (the Bitcoins held) and a liability (the obligation to return the Bitcoins to the clients) on its balance sheet. This dual recording could significantly impact the bank’s balance sheet and potentially increase its capital requirements.
Impact of Repealing SAB 121:
With the repeal of SAB 121, financial institutions are no longer obligated to record cryptocurrencies held in custody as liabilities. This change could make it easier for banks and other financial service providers to offer crypto custody services, as the previous accounting hurdles have been removed. This move is expected to pave the way for broader acceptance and integration of cryptocurrencies within the traditional financial sector.
The SEC’s decision to rescind SAB 121 has been welcomed by many in the industry. The American Bankers Association praised the move, stating it allows banks to provide their customers with secure and reliable digital asset services
However, it is important to note that despite this regulatory relief, risks related to cryptocurrency custody remain. Financial institutions must continue to implement robust risk management and security protocols to protect their customers’ assets.
Overall, the repeal of SAB 121 signals a proactive and supportive approach by U.S. regulators toward digital assets and could facilitate stronger integration of cryptocurrencies into the traditional financial system.
SEC rescinds SAB 121, easing crypto custody for banks.
Source:
cointelegraph.com
