The U.S. Securities and Exchange Commission (SEC) has officially revoked a significant accounting regulation that stirred up a lot of debate in the banking and cryptocurrency sectors. This regulation, known as Staff Accounting Bulletin (SAB) No. 121, was introduced in March 2022. It required financial institutions to list cryptocurrency held for clients as liabilities on their balance sheets. The SEC made this change on January 23, 2025, marking a key shift in how digital assets are regulated.
When SAB 121 first came into effect, the crypto markets faced intense scrutiny. The rule aimed to enhance transparency by requiring companies to recognize a liability and a corresponding asset for the digital currencies they held. This was meant to protect consumers in case of insolvency or operational failures.
However, many critics argued that the regulation created practical challenges. It misrepresented the nature of custody arrangements. By labeling digital assets as liabilities, it complicated financial reporting and discouraged businesses from using crypto custody services. Many viewed it as a major barrier to the banking sector's adoption of cryptocurrencies.
Opposition to SAB 121 came from various quarters. Financial institutions, lawmakers, and members of the crypto community expressed strong concerns. Industry leaders pointed out that classifying client assets as liabilities went against standard practices for traditional asset custodians. Representative Wiley Nickel emphasized that this regulation limited U.S. institutions' ability to expand crypto-related services, like exchange-traded products.
The impact of SAB 121 reached beyond financial firms. Senator Cynthia Lummis and others argued that it stifled innovation in the digital asset market. They felt it made it harder for American companies to compete globally. Lummis stated that the law “only stunted American innovation and advancement of digital assets and was disastrous for the banking industry.”
In Congress, bipartisan efforts to repeal SAB 121 gained traction. Lawmakers passed a resolution in 2024 aimed at overturning the regulation. However, this victory faced a setback when then-President Joe Biden vetoed it. He argued that the SEC’s approach was crucial for protecting investors and consumers. This veto highlighted the ongoing divide over how to regulate digital assets in a rapidly evolving market.
The deadlock was broken after Donald Trump’s inauguration in 2025. He campaigned on a pro-crypto platform. His administration quickly moved to address industry concerns, with the repeal of SAB 121 as a key first step.
The SEC's decision to revoke SAB 121 reflects a broader shift in regulatory priorities. The new framework allows businesses to apply established accounting standards, like International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP), for assessing crypto custodial responsibilities. This approach aligns crypto custody with traditional asset management, reducing compliance burdens and fostering innovation.
Industry advocates have mostly welcomed the repeal. SEC Commissioner Hester Peirce, a strong supporter of the cryptocurrency industry, praised the move. She emphasized the importance of practical regulation. Peirce, who now leads the SEC’s crypto task force, has committed to overseeing digital assets transparently and collaboratively.
With SAB 121 gone, U.S. financial institutions have more opportunities to engage with cryptocurrency markets. The reduction in reporting requirements allows businesses to offer custody services more effectively. Analysts suggest that this regulatory reform could lead to greater adoption of cryptocurrency-based investment vehicles, including exchange-traded funds (ETFs).
Kristin Smith from the Blockchain Association stated that the repeal “really opens up a whole new market.” She highlighted the potential for boosting investor confidence and creating innovative financial solutions that were previously limited by regulatory uncertainty.
While the crypto sector celebrates the repeal of SAB 121, it also raises the ongoing challenge of balancing investor protection with innovation. The SEC has reiterated the importance of transparency and compliance with existing regulations. The agency remains dedicated to ensuring that market participants adhere to principles of accountability and fairness, even as it adjusts its stance on crypto assets.
Hester Peirce’s leadership of the SEC’s crypto task force shows her commitment to establishing a regulatory framework that balances risk management with innovation. The task force aims to engage and collaborate with industry stakeholders rather than relying solely on enforcement-driven approaches.
The repeal of SAB 121 is part of a larger shift in U.S. policy regarding digital assets. President Trump’s administration has initiated the formation of a presidential working group to promote crypto-friendly policies. This group will explore initiatives like a national cryptocurrency reserve and measures to prevent the emergence of a central bank digital currency (CBDC).
These developments suggest that the United States is positioning itself as a leader in the global digital asset market. Policymakers are striving to create a regulatory environment that fosters innovation while ensuring consumer protection. They aim for a balance that supports long-term growth and competitiveness.
While the repeal of SAB 121 marks a significant change for the cryptocurrency sector, it also highlights the constantly evolving nature of the regulatory landscape. As digital assets gain popularity, regulators will need to tackle complex issues related to systemic risk, fraud prevention, and market stability.
In the coming years, the focus will likely shift toward developing comprehensive frameworks that address emerging trends like tokenization, blockchain-based payment systems, and decentralized finance. The SEC's decision to eliminate SAB 121 is a significant step in this direction, demonstrating its readiness to embrace innovation while maintaining accountability and transparency.