SEC Withdraws Controversial Crypto Accounting Rule SAB 121

By / / Crypto News, Daily News
SEC Withdraws Controversial Crypto Accounting Rule SAB 121

Overview:
In a major development for the crypto industry, the U.S. Securities and Exchange Commission (SEC) has voted to rescind SAB 121, its controversial accounting rule that forced companies holding cryptocurrencies on behalf of customers to report them as liabilities on their balance sheets. The decision has been widely hailed by the crypto community, which had criticized the rule as too restrictive and damaging to industry growth.

Table Of Contents
  1. What Was SAB 121?
  2. Reversal of the Rule: Key Highlights
  3. Industry Reactions
  4. Impact and Future Outlook
  5. What is Next?

What Was SAB 121?

The SEC introduced SAB 121 in March 2022. The rule mandated that financial institutions holding cryptocurrencies for clients include them as liabilities on their financial statements. This resulted in huge compliance burdens on crypto businesses, making custody operations challenging and hindering innovation in the sector.

Reversal of the Rule: Key Highlights

Date of Repeal

The SEC officially rescinded SAB 121 on January 23, 2025, through a new Staff Accounting Bulletin.

Impact on Financial Firms

  • Firms that store cryptocurrencies for customers no longer have to account for those assets as liabilities, simplifying their accounting processes.
  • This change could lower the barriers confronting financial institutions when dealing with the cryptocurrency market.

Industry Reactions

Crypto Community Support

  • SEC Commissioner Hester Peirce celebrated the repeal, tweeting, “Bye, bye SAB 121! It’s not been fun.”
  • House Financial Services Committee Chair French Hill called an earlier version of the rule “misguided,” noting that holding reserves for custody assets was not a practice allowed in traditional finance.
  • Senator Cynthia Lummis welcomed the move, stating that SAB 121 was “catastrophic for banking” and a “barrier to crypto innovation.”

Legislative View

  • Representative Wiley Nickel stated that SAB 121 increased risks by forcing crypto exchanges into the hands of non-bank entities, thereby limiting banks’ ability to manage crypto exchange-traded products.

Impact and Future Outlook

The repeal of SAB 121 is widely seen as a win for the crypto industry, which had long argued that the rule was a significant growth hindrance. By removing the need for crypto firms to treat client-held assets as liabilities, this decision is expected to:

  • Encourage more financial firms to participate in crypto custody services.
  • Drive innovation in the sector, as firms can now operate with greater flexibility.
  • Pave the way for widespread use of cryptocurrencies in mainstream finance.

What is Next?

The abolition of SAB 121 marks a significant change under the leadership of acting SEC chairman Mark Uyeda. Industry analysts anticipate that this decision will trigger a boom in crypto adoption, with more people entering the new markets. A financial system can never be stable unless it remains innovative.

The crypto industry is now eagerly awaiting further clarity from regulators, as this moment marks a pivotal time in digital asset regulations in the U.S.

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