SAB 121 Rescinded: The SEC’s New Stance on Crypto Asset Safeguarding with SAB 122

OpenAI DALL-E3 by Author

In a significant shift for crypto custody and financial reporting, the U.S. Securities and Exchange Commission (SEC) has rescinded Staff Accounting Bulletin (SAB) №121, replacing it with SAB 122, effective January 23, 2025. This decision marks a major regulatory reversal, removing the controversial requirement for custodians of crypto assets to recognize both a liability and a corresponding asset on their balance sheets.

The rescission of SAB 121 will reshape financial disclosures, compliance burdens, and the overall regulatory landscape for crypto custodians, exchanges, and financial institutions. While it alleviates concerns over capital and reserve requirements, the move raises broader questions about the SEC’s evolving stance on digital asset regulation.

Issued on March 31, 2022, SAB 121 imposed a novel accounting framework on entities safeguarding crypto assets, requiring them to recognize a liability equal to the fair value of customer assets under custody with a corresponding asset. The SEC justified this approach by citing unique technological, legal, and regulatory risks in crypto custody, particularly concerns over private key management, counterparty risk, and security…