On January 23, 2025, the U.S. Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 122 officially rescinding SAB 121.

SAB 121 was issued by the SEC on March 31, 2022. The purpose, per the SEC, was to provide guidance on the accounting for obligations to safeguard crypto-assets that an entity holds for its platform users.

Some of the key points from SAB 121:

  • Safeguarding Obligations and Measurement: Entities that hold crypto-assets for their users would have been required to recognize a liability to reflect their obligation to safeguard these assets and measure both the liability and corresponding asset at fair value.
  • Asset Recognition: Entities should also recognize an asset representing their right to receive compensation for safeguarding the crypto-assets.
  • Disclosure Requirements: Entities must provide detailed disclosures about the nature and risks of the crypto-assets they hold for users, specifically including how they manage these risks.

According to the SEC staff, SAB 121 was intended to guard against the “significant risks and uncertainties associated with safeguarding crypto assets.”

These requirements made it extremely difficult for financial institutions to offer custodial services to crypto clients by enacting these untenable guidelines.

With this repeal, banks and financial institutions custodying crypto for customers are no longer required to allocate reserves to balance out Bitcoin as a liability on the balance sheet.

The enactment of SAB 122 officially rescinds the interpretive guidance and instead directs firms to use Financial Accounting Standards Board rules or International Accounting Standard provisions.


Listen In: Good Riddance – SAB 121 Is No Longer

In this truncated episode of Cryptonomix, host Mark Eckerle reviews the SEC’s decision to rescind SAB 121, its main components and its impact on financial institutions.

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