SEC Rescinds SAB 121: What It Means for Crypto Firms & How GiGCXOs Supports Compliance
In a major policy reversal the Securities and Exchange Commission has rescinded Staff Accounting Bulletin No. 121, a directive that had required companies holding digital assets for customers to account for them as liabilities on their balance sheets. The decision, announced on January 23, 2025 through the release of Staff Accounting Bulletin No. 122, brings the accounting treatment of crypto custody into line with that of traditional custodial assets and removes what many in the industry considered a serious obstacle to broader adoption.
SAB 121 was issued in March 2022 and directed firms safeguarding crypto assets for platform users to recognize a corresponding liability and asset measured at fair value. The approach was meant to reflect the technological and regulatory risks associated with digital assets but quickly drew criticism from banks and custodians who argued that it artificially inflated balance sheets and discouraged them from entering the market. Critics said the rule imposed steep capital requirements and created an uneven playing field compared with traditional custody.
The SEC has now replaced that guidance with SAB 122, which eliminates the blanket requirement to book crypto assets as liabilities and instead instructs firms to apply existing accounting standards for contingencies such as ASC 450-20 under U.S. GAAP or IAS 37 under IFRS when evaluating potential risks of loss. By taking this approach, the Commission has sought to standardize practices across asset classes and reduce the operational burdens that had come with SAB 121.
The change is expected to encourage banks and financial institutions to expand into crypto custody without fear of destabilizing their balance sheets. Industry advocates say the decision provides clarity, reduces complexity, and signals a more constructive regulatory approach to digital assets. The American Bankers Association welcomed the move, saying it restores the ability of banks to act as trusted custodians for clients seeking secure digital asset services. SEC Commissioner Hester Peirce, who has been tapped to lead a new task force on crypto regulation, also praised the rescission and said it demonstrates a more balanced attitude toward the sector.
The repeal of SAB 121 and the introduction of SAB 122 mark a turning point in how regulators are handling the integration of crypto into the financial system. By aligning the treatment of digital custody with longstanding practices for traditional assets, the SEC has cleared away one of the largest hurdles facing institutions and set the stage for more widespread adoption of digital asset services across the industry.
