SAB 121 Rescinded: Major Shift in Crypto Custody and Regulation Ahead!

What was SAB 121?

The Staff Accounting Bulletin 121 (SAB 121) was a rule introduced by the SEC in March 2022,regulating cryptocurrency custody. This rule required financial institutions to list any assets they held for customers as liabilities, similar to conventional custodial assets, such as cash or securities.

However, the crypto sector opposed it for being burdensome and not aligning with the unique nature of crypto assets. Due to industry-wide protests, the rule was eventually rescinded by President Donald Trump on January 23, 2023.

Why did they cancel SAB 121?

Many in the sector claimed that SAB 121 would limit market growth, making it harder for institutions to provide crypto custody services. Consequently, the rule was replaced by SAB 122 which effectively rescinded the former.

Key changes under SAB 122

• Liability assessment: Companies must assess liability and measure it using established accounting standards.
• Retrospective application: Changes apply to annual periods starting after December 15, 2024, with early adoption option in SEC filings.
• Enhanced disclosures: Companies must continue providing detailed disclosures about safeguarding obligations.

What does the rescission of SAB 121 mean for crypto custody and regulation?

The repeal of SAB 121 means several positive outcomes such as:

• Simplified custody operations
• Increased trust in crypto custody
• More encouragement for banks to join the crypto market

The SEC’s ruling demonstrates a possible move towards balanced regulation of cryptocurrency. This shift will allow financial institutions to embrace the unique features of digital assets while maintaining oversight and investor protection.