SEC Replaces SAB 121, Easing Crypto Custody Accounting for Banks
SEC Replaces SAB 121, Easing Crypto Custody Accounting for Banks
The US Securities and Exchange Commission (SEC) has issued Staff Accounting Bulletin No. 122 (SAB 122), effectively replacing SAB 121. This significant change offers greater flexibility in accounting for custodial crypto assets, easing the burden on firms, particularly regulated banks, considering crypto custody services.
Key Changes and Implications
- Rescission of SAB 121: The SEC has repealed SAB 121, which mandated the recording of customer crypto assets as liabilities. This requirement faced considerable criticism for hindering the growth of crypto custody services.
- Principles-Based Approach (SAB 122): SAB 122 adopts a principles-based approach, allowing banks to utilize established accounting principles to assess and record potential risks associated with holding customer cryptocurrency. This offers significantly more flexibility than the previous, rigid requirements.
- Contingent Liabilities: Under SAB 122, potential losses related to custodied crypto can be treated as contingent liabilities, a much more manageable accounting treatment.
SEC Commissioner Hester Peirce announced the change, stating, “Bye, bye SAB 121! It’s not been fun.” This action follows the formation of a new SEC crypto task force aimed at creating clearer regulatory frameworks for the industry.
The previous SAB 121 faced significant pushback from the industry. Many argued it unfairly disadvantaged banks compared to other financial institutions and created significant economic barriers to entry for crypto custody services. This led to limited secure custody options for consumers.
While a previous attempt to overturn SAB 121 through Congressional action was vetoed by President Biden, the SEC's own revision represents a significant step toward creating a more accommodating regulatory environment for crypto custody.
Senator Cynthia Lummis celebrated the change, stating, “SAB 121 was disastrous for the banking industry, and only stunted American innovation and advancement of digital assets. I am THRILLED to see it repealed and get the SEC back on track to fulfilling its intended mission.”
Impact on the Crypto Industry
The transition to SAB 122 is expected to facilitate the expansion of banking services in the crypto sector. With a more practical accounting framework, banks can now more readily offer crypto custody services for assets like Bitcoin, potentially increasing consumer trust and security.
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