The U.S. Securities and Exchange Commission has axed crypto accounting guidance that drew ire from the industry for a long time.
The U.S. Securities and Exchange Commission has axed crypto accounting guidance SAB 121, which drew ire from the industry for a long time.
| Key Takeaways: – The SEC has replaced the controversial crypto accounting guidance SAB 121 with SAB 122, easing accounting requirements for custodial crypto assets. – SAB 121 had mandated firms to record custodied crypto as liabilities, a rule criticized for making crypto custody economically unfeasible. |
The move, announced on Jan. 23, supplants prior guidance under Staff Accounting Bulletin No. 121 (SAB 121) with a new bulletin, SAB 122, that provides financial institutions greater flexibility in how they account for custodial crypto assets.
The SAB 121, introduced in March 2022, compelled companies to record digital assets held on behalf of customers as a liability on the balance sheet. Critics said this crypto accounting guidance rendered crypto custody economically unviable for the majority of firms. This severely limits secure custody options for consumers and blocks the entry of banks into the market.
The new guidance under SAB 122 eliminates the controversial requirement, allowing financial institutions to apply existing accounting standards for contingencies when assessing potential liabilities.
The crypto industry and its advocates have embraced the change. The new crypto accounting guidance makes it more practical for companies to offer custody services for cryptocurrencies like Bitcoin by treating potential losses as contingent liabilities rather than fixed balance sheet items.
The change comes amid a broader shift in the SEC’s approach to cryptocurrency regulation after the resignation of former SEC Chair Gary Gensler earlier this week. He had defended the SAB 121 as necessary to protect investors from the risks of bankruptcies in the crypto sector.
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