The U.S. Securities and Exchange Commission (SEC) has withdrawn its controversial Staff Accounting Bulletin 121 (SAB 121), marking a turning point in the regulation of digital assets. In its place, SAB 122 has been introduced.
The SEC's Decision to Rescind SAB 121
On Thursday, the SEC announced the revocation of SAB 121, introduced in 2022. SAB 121 required financial institutions to account for cryptocurrency assets held for platform users as liabilities on their balance sheets. This directive led to significant concerns within the financial and crypto industries, posing challenges to the development and scaling of digital asset services. The new guidance, SAB 122, offers a more flexible approach, allowing financial institutions to custody digital assets without recording them as liabilities, while still requiring disclosure of any associated risks and obligations.
Why Was SAB 121 Controversial?
SAB 121 faced criticism from multiple fronts. The American Bankers Association argued that it restricted banks' ability to develop digital asset products and services at scale. The bulletin also faced strong opposition from both Republican and Democrat lawmakers who viewed it as a barrier to innovation in the digital asset sector. Even within the SEC, there were opposing views: Commissioner Hester Peirce argued that SAB 121 added unnecessary complexity, creating confusion and hindering the growth of the crypto sector.
A Shift in Regulatory Strategy
The rescinding of SAB 121 occurs under the leadership of SEC Acting Chairman Mark Uyeda. Under his guidance, the SEC has taken a more flexible and accommodating approach to cryptocurrency regulation, starkly contrasting the harsher stance of former Chairman Gary Gensler. Many in the crypto industry have welcomed this change, seeing it as a sign of the SEC moving toward a more supportive regulatory environment, aligning with a broader political shift in the U.S. favoring crypto.
With the rescinding of SAB 121, financial institutions can now custody digital assets without recording them as liabilities, simplifying their accounting processes. The new SAB 122 guidance encourages broader compliance with accounting standards such as U.S. GAAP contingency rules and IFRS guidelines.
