SEC’s Bold Move to Rescind SAB 121, Unlocks Crypto Custody for Wall Street Banks

• SEC removes accounting rule, allowing banks to hold digital assets.
• SAB 121 reversal boosts Wall Street’s crypto offerings and expansion.
• SEC’s new crypto task force to guide clearer regulatory path.

The SEC’s recent move to rescind SAB 121 marks a turning point for Wall Street’s relationship with digital assets. With the rule now lifted, major banks are poised to broaden their digital assets services and reshape the market’s landscape.

SEC Reverses Rule, Greenlights Wall Street Banks

The U.S Securities and Exchange Commission (SEC) has reversed the Staff Accounting Bulletin 121 (SAB 121) rule that hindered Wall Street banks from holding cryptocurrencies. The decision marks a shift in the regulatory landscape, paving the way for increased participation in the crypto sector. The SEC has removed a major barrier that discouraged banks from offering digital asset services.

SAB 121, introduced in 2022, required banks to treat digital assets as liabilities on their balance sheets when providing crypto custody services. This rule imposed high capital requirements and increased operational costs, making it costly for financial institutions to manage large volumes of digital assets. This regulation deterred many banks from expanding their digital assets offerings, such as custody and transaction services, for clients.

Leadership Changes Influence on SEC Decision

The SEC’s move comes after a sustained push from the crypto industry to overturn the rule. Last year, a bipartisan effort in Congress sought to revoke SAB 121,although President Joe Biden vetoed the proposal. However, the growing momentum to reshape digital assets regulations gained traction, leading to the SEC’s decision this week.

Hester Peirce, a pro-crypto SEC commissioner, celebrated the announcement. She had voiced strong opposition to SAB 121, and in a recent post on X, Peirce expressed relief at its revocation. Peirce has been tasked with leading a new SEC crypto task force, aimed at developing a clear regulatory framework for digital assets.

This change comes a few days after the departure of former SEC Chair Gary Gensler on January 20. Gensler, a vocal advocate for stricter digital asset regulations, defended the accounting rule as necessary to protect investors. His resignation is likely to reshape the regulatory approach to digital assets, especially as President Donald Trump’s administration seeks to embrace digital asset growth.

Impact of SAB 121 Reversal

The SEC’s decision is expected to have a major impact on Wall Street’s involvement in the crypto industry. Major banks, such as Goldman Sachs, Morgan Stanley, and Bank of America, have previously indicated that they could integrate crypto strategies if regulatory conditions improved. The CEOs of these institutions have expressed optimism that a more favorable regulatory environment could enable them to expand their digital asset offerings.

The SEC’s new approach signals an opportunity for Wall Street to strengthen its position in the rapidly growing digital asset market. Financial institutions may broaden their digital assets services because of reduced barriers. The decision is likely to boost innovation and investment in digital assets, further integrating digital assets into traditional financial markets.

The reversal of SAB 121 sets a clearer path for banks improving institutional adoption of digital assets.