The Securities and Exchange Commission has gazetted its much-contested crypto accounting rule, SAB 121. Firms holding cryptocurrencies on behalf of their clients will no longer report them as liabilities on their balance sheets. This decision has raised the hopes of many within the crypto fraternity who cited the earlier approach as too restrictive and a serious growth hindrance.
The SEC issued a new Staff Accounting Bulletin (SAB) on January 23 revoking SAB 121. SAB 121 was created in March 2022; such had made financial institutions holding cryptocurrencies for their customers to record such assets as liabilities on their balance sheets. The crypto industry has opposed the rule since it adds complexity to custody procedures and stifies innovation within the sector.
SEC Commissioner Hester Peirce welcomed the reversal by proclaiming on social media, "Bye, bye SAB 121! It's not been fun."
House Financial Services Committee Chair French Hill also welcomed the decision, calling SAB 121 “misguided” and stressing that holding reserves against custody assets is not standard in finance.
Representative Wiley Nickel argued SAB 121 hindered banks’ ability to manage crypto exchange-traded products and increased risks by shifting control to non-bank entities. Senator Cynthia Lummis called the rule “disastrous for banking” and a barrier to crypto innovation, welcoming the repeal and urging the SEC to focus on its core mission
The move was the first major policy change by acting chair Mark Uyeda of the SEC. The repeal of the original rule was initially bipartisan in the U.S. Congress. Despite facing a veto from former President Joe Biden in 2024, the repeal had come through, and now it's in effect across the board, widely approved.
The repeal of SAB 121 is expected to encourage broader participation from financial firms in crypto custody and drive innovation forward.
The rescission of SAB 121 marks a significant victory for the crypto industry and represents a turning point in financial regulations governing digital assets. By addressing longstanding industry concerns, the SEC's decision paves the way for enhanced innovation and broader participation in the rapidly evolving cryptocurrency landscape.
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