SEC Revokes Controversial Staff Accounting Bulletin SAB 121
In a significant move just days after Gary Gensler’s resignation, the U.S. Securities and Exchange Commission (SEC) has officially revoked the contentious Staff Accounting Bulletin (SAB) 121. This rule garnered widespread criticism for its directive to banks holding cryptocurrency to classify these assets as liabilities on their balance sheets, a measure that many viewed as detrimental to the burgeoning crypto sector.
The New Guidance: SAB 122 Takes Over
On January 23, 2025, the SEC issued a new bulletin announcing the rescission of the interpretive guidance established under SAB 121. The commission emphasized that entities should now assess their liabilities tied to custodian risks under more comprehensive accounting standards. The SEC clarified that this change must be applied retroactively for annual periods commencing after December 15, 2024.
Vanessa A. Countryman, the Secretary of the SEC, confirmed that the newly instituted SAB 122 has taken the place of the now-revoked SAB 121. This transition marks a notable shift in the SEC’s approach to crypto asset classification.
Reactions from SEC Officials
The SEC’s decision has been met with a mix of relief and optimism among its commissioners. Hester Peirce, a prominent voice within the commission, took to X (formerly Twitter) to express her sentiments: “Bye, bye SAB 121! It’s not been fun: SEC.” Peirce has long been vocal about her criticisms of the SAB 121 rule, having previously described it as a “pernicious weed” that discourages innovation.
In an April 2024 event, Peirce underscored her belief that regulations with such a sweeping impact should not be dictated by a small staff reporting directly to the chairman but should involve the entire commission in a collaborative effort.
Support from Lawmakers
Wyoming Senator Cynthia Lummis echoed these sentiments in her support for the rescission of SAB 121. She labeled the rule as “disastrous for the banking industry,” claiming that it hindered American innovation and stunted progress in digital asset development. Lummis confidently tweeted her enthusiasm for the repeal, expressing hope that it would help the SEC realign with its original mission of promoting capital formation and protecting investors.
A Controversial Legacy: The Veto and Criticism
This revocation follows a tumultuous period for SAB 121. On May 16, 2024, the U.S. Senate had voted to overturn the accounting bulletin, but the legislation was ultimately vetoed by former President Joe Biden. He defended SAB 121 as a product of the SEC staff’s well-considered technical expertise, which added another layer of complexity to the ongoing debate over cryptocurrency regulation in the United States.
Critics of SAB 121, including Circle CEO Jeremy Allaire, have voiced their discontent. Allaire highlighted how the rule imposed punitive measures on banks and institutions that wished to include cryptocurrency assets on their balance sheets. He expressed hope for its repeal and called for the upcoming executive order on cryptocurrency to closely monitor regulatory guidance concerning crypto accounting.
Why It Matters
The revocation of SAB 121 represents a pivotal moment for the cryptocurrency and financial sectors. By reassessing the accounting treatment of crypto assets, the SEC aims to encourage innovation and foster a more accommodating environment for digital assets. This change could potentially enhance institutional participation in the crypto market and promote a more favorable landscape for digital asset regulation.
Expert Opinions
Industry experts have welcomed the SEC’s decision, recognizing it as a step toward rationalizing crypto regulations. Many argue that the overly burdensome nature of SAB 121 deterred financial institutions from engaging with cryptocurrencies wholeheartedly. Moving forward, a more balanced regulatory approach may stimulate greater engagement and foster growth within this dynamic industry.
Future Outlook
As the SEC implements SAB 122, all eyes will be on how this new guidance influences institutional behavior towards cryptocurrency. The future of crypto regulation in the United States remains fluid, and stakeholders are optimistic that this change will pave the way for clearer rules and a more robust market framework. If successful, it could potentially reshape the landscape for digital assets in a way that emphasizes both innovation and investor protection.
