U.S. Banks Regain Ground as SEC Eliminates SAB 121 Safeguarding Obligations

• The SEC abandoned SAB 121, removing limitations on U.S. banks regarding digital asset custody services.
• SAB 121’s dissolution enables banks to compete directly with crypto platforms.
• The change promotes invention, regulatory compliance, and competitiveness in the U.S. financial sector’s role in crypto markets.

The U.S. Securities and Exchange Commission has rescinded Staff Accounting Bulletin (SAB) No. 121, a directive that previously established accounting practices for entities safeguarding crypto assets on behalf of platform users. The decision, formally detailed in SAB No. 122, becomes effective immediately following its publication in the Federal Register.

SAB 121 and Its Impacts on U.S. Banking

SAB 121, introduced on March 31, 2022, outlined specific requirements under Topic 5.FF regarding the recognition of safeguarding obligations for crypto-assets. These rules required institutions holding digital assets for users to record corresponding liabilities on their balance sheets.

This accounting framework created significant barriers for U.S. banks, curbing their involvement in the emerging digital asset ecosystem. Critics of the policy linked it to the outflow of cryptocurrency innovation from the United States, citing operational and compliance difficulties as key issues.

The limitations imposed by SAB 121 hindered domestic banks’ ability to modernize and adapt to evolving market demands, leaving crypto-focused platforms with a dominant role in digital asset custody.

Rescission of SAB 121

The issuance of SAB No. 122 repeals these restrictions, removing the safeguarding obligations and enabling banks to participate directly in digital asset custody. This change marks a pivotal regulatory development, restoring banks’ ability to offer custody services and compete in the digital asset market.

By addressing the structural limitations imposed in 2022, this policy shift is expected to promote competition in the industry. Banks may now compete with established cryptocurrency custody providers, potentially redistributing market share within the digital asset ecosystem.
Industry participants foresee the SEC’s latest move redefining the role of U.S. financial institutions in the crypto landscape. This action is expected to stimulate innovation and encourage regulatory compliance in the banking sector, enabling secure digital asset services for a broader range of clients.