The U.S. Securities and Exchange Commission (SEC) has officially withdrawn the controversial Staff Accounting Bulletin (SAB 121), marking a shift in digital asset regulation. Instead, a new bulletin, SAB 122, has been introduced.
The SEC's Decision to Rescind SAB 121
On Thursday, the SEC announced it was revoking SAB 121, which was introduced in 2022 and required financial institutions to treat cryptocurrency assets held for platform users as liabilities. This directive raised significant concerns within the financial and crypto industries by 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. However, the SEC stated that entities must still disclose any risks and obligations associated with safeguarding crypto assets.
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 saw it as a barrier to innovation in the digital asset sector. Critics claimed it created unnecessary complexity and an uneven playing field for crypto platforms. Even within the SEC, there were opposing views. SEC Commissioner Hester Peirce argued that SAB 121 added unnecessary complexity, creating confusion and hindering the growth of the crypto sector. The backlash was so intense that Congress passed a resolution to overrule the guidance, although former President Joe Biden vetoed it, maintaining the regulation for a time.
A Shift in Regulatory Strategy
The rescinding of SAB 121 comes 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, a stark contrast to the harsher stance taken during former Chairman Gary Gensler's tenure. Many in the crypto industry have welcomed this change, seeing it as a sign of the SEC moving toward a more supportive regulatory environment. Additionally, President Trump's administration has taken steps to support crypto through executive orders and task force initiatives aimed at creating a clearer and more balanced regulatory framework for digital assets.
With SAB 121 officially rescinded, financial institutions can now custody digital assets without recording them as liabilities, simplifying their accounting processes. This change is particularly significant for banks wishing to offer crypto-related products, reducing control by non-bank entities over the market and potentially promoting a more competitive and diverse digital asset ecosystem.
