SEC Clears the Way for Crypto Custody
On January 23, 2025, barely 72 hours after the appointment of Mark Uyeda as the Acting Chairman of the U.S. Securities and Exchange Commission, and less than 48 hours after Chairman Uyeda announced that Commissioner Hester Peirce would be leading a “Crypto Task Force,” the Commission released Staff Accounting Bulletin 122, which effectively withdraws SAB 121 and is the first step in transforming the regulatory landscape around crypto-assets.
Background
SAB 121, issued on March 31, 2022 by the SEC’s Office of the Chief Accountant and the Division of Corporation Finance’s Office of the Chief Accountant, was widely seen by the digital assets and investment management industries as a procedural ban on crypto-asset platforms. This flowed from SAB 121’s imposition of asset-specific accounting requirements, including:
- Booking Liabilities: SAB 121 required an entity operating a crypto-asset platform that is “responsible for safeguarding the crypto-assets held for its platform users” (which included the maintenance of cryptographic key or similar access information) to “present a liability on its balance sheet to reflect its obligation to safeguard the crypto-assets held for its platform users.”
- Disclosure: SAB 121 also required specific disclosure of the technological, legal, and regulatory risks associated with safeguarding crypto-assets.
The liability presentation requirement was seen by the digital assets community as an insurmountable barrier for crypto-asset platforms seeking to register under the U.S. securities laws. This accounting treatment also effectively prevented banks from being able to develop and market digital asset products.
Specific Impact of SAB 122
In one of its first actions, the post-Gensler SEC issued SAB 122, which withdraws SAB 121. The effect of this action is to remove the requirement for crypto-asset custodians to - in all cases - book liabilities. The Bulletin, rather, puts balance sheet decisions back on the reporting entity, stating that, from and after the effectiveness of SAB 122:
an entity that has an obligation to safeguard crypto-assets for others should determine whether to recognize a liability related to the risk of loss under such an obligation, and if so, the measurement of such a liability, by applying [pre-existing Financial Accounting Standards Board and International Accounting Standard loss contingency considerations and guidance.]
SAB 122 does reiterate the general disclosure obligations of all reporting entities, noting that affected entities “should continue to consider existing requirements to provide disclosures that allow investors to understand an entity’s obligation to safeguard crypto-assets held for others.”
Broader Impact
This Bulletin, taken by itself, should not be seen as a full reset of the financial regulatory regime governing crypto-assets. Numerous other steps will need to be taken by the SEC, the CFTC, and the various prudential regulators across the industry. However, it is a giant first step and indicates that the velocity and scope of changes in the crypto-asset space under President Trump will be great.