Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
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SEC Rescinds SAB 121, Allowing Banks to Custody Bitcoin
Crypto Regulation | Jan 24, 2025
Bye Bye SAB 21 -- Hello SAB 122, Banks Can Now Securely Custody Cryptocurrency Assets
On January 23, 2025, the U.S. Securities and Exchange Commission (SEC) cancelled the controversial Staff Accounting Bulletin No. 121 (SAB 121) and replaced it with an updated SAB 122. This move addresses the concerns about the accounting treatment of digital assets, opening the door and making it easier for banks, fintech companies, and crypto custodians to legally provide cryptocurrency custody services.
Key Insights
- The problem with SAB 21 is that it required all financial institutions such as banks, fintech firms, and crypto custodians to record customer crypto assets as liabilities on their balance sheets, inflating the financial and operating risks (of doing business with crypto). This accounting treatment discouraged banks from offering custody services for crypto because it inflated their liabilities making their financial positions look risky, impacting regulatory compliance.
- Now with the new SAB 122, financial institutions can now report their services more accurately without inflating liabilities by following well known accounting Financial Accounting Standards Board (FASB) rules in the U.S. or similar international standard.
See: Trump Signs New Order for Crypto Rules, Bans CBDCs, Eyes Asset Reserve
- The updated bulletin reminds entities to maintain clear and detailed disclosures that allow investors to understand obligations related to the company's responsibilities to safeguard crypto assets, such as detailing operations, potential risks, and management practices.
- The rescission is to be applied retrospectively, starting from December 15, 2024 with options for early adoption.
SEC Commissioner Hester Peirce Reaction on X:
"Bye, bye SAB 121! It’s not been fun" -
Why it Matters
The rescission of SAB 121 further highlights the regulatory pivot currently evolving on digital assets and their imminent role in mainstream finance and broader financial landscape. It could attract billions of dollars in institutional investments into crypto markets, further bridging the gap between traditional versus digital finance while boosting innovation and the credibility of cryptocurrencies.
See: SEC Launches Crypto 2.0 Task Force Led by ‘Crypto Mom’
This development could set a precedent for other jurisdictions to follow. As regulatory clarity improves, crypto market potential as a core piece of the global financial ecosystem grows stronger.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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