The Securities and Exchange Commission (SEC) has officially rescinded Staff Accounting Bulletin (SAB) 121, a controversial rule that required financial firms holding cryptocurrency to record these assets as liabilities on their balance sheets.
The SEC announced the repeal in a new Staff Accounting Bulletin published on January 23, explaining that it is withdrawing the interpretive guidance issued in March 2022 under SAB 121. The rule had faced significant criticism from the crypto industry, which argued that it imposed unnecessary administrative burdens.
Industry and Lawmaker Reactions
Hester Peirce, SEC Commissioner and head of the agency’s crypto task force, welcomed the decision, tweeting: “Bye, bye SAB 121! It’s not been fun.”
The original rule required financial institutions holding cryptocurrencies on behalf of customers to classify those assets as liabilities. Critics argued that this approach was inconsistent with standard financial services practices and hindered the growth of the crypto market.
French Hill, Chair of the House Financial Services Committee, expressed his approval in a statement, calling SAB 121 a “misguided” policy. He emphasized that requiring reserves against custodial crypto holdings was not standard industry practice.
Representative Wiley Nickel also opposed the rule, warning that it could push American banks out of the crypto custody market and create concentration risks by giving non-bank entities more control. Senator Cynthia Lummis shared similar concerns, describing SAB 121 as a roadblock to innovation and stating, “I am thrilled to see it repealed and get the SEC back on track to fulfilling its intended mission.”
A Long Journey to Repeal
The repeal of SAB 121 is the first major move by the SEC under its new leadership. Acting Chair Mark Uyeda, who was appointed during President Donald Trump’s administration, oversaw the decision.
The effort to revoke SAB 121 initially gained bipartisan support in both the House and Senate. However, former President Joe Biden vetoed a bill to repeal the rule on June 1, 2024. A subsequent vote to override the veto failed in the House by a margin of 60 votes.
The crypto industry and financial institutions have applauded the SEC’s decision to rescind the rule, marking a turning point in the regulatory environment for digital assets.
