SEC Scraps Controversial Crypto Accounting Rule: New Guidance Issued
In a significant move impacting the financial and cryptocurrency sectors, the U.S. Securities and Exchange Commission (SEC) has officially rescinded Staff Accounting Bulletin (SAB) 121. The bulletin, initially implemented to regulate how financial institutions handle customers' cryptocurrency assets, has been replaced with updated guidance under SAB 122.
What Changes With SAB 122?
SAB 121 required banks and other public entities to record customers' crypto assets on their own balance sheets, a practice aimed at protecting investors during bankruptcy scenarios. However, the newly issued SAB 122 eliminates this mandate, directing institutions to follow Financial Accounting Standards Board (FASB) rules or International Accounting Standards. The SEC also emphasized the importance of disclosures to help investors understand obligations tied to safeguarding crypto assets.
Why Was SAB 121 Controversial?
The guidance, introduced under former SEC Chair Gary Gensler, was designed to address risks uncovered in bankruptcy proceedings, where courts often ruled that crypto assets weren't immune to creditors' claims. However, it faced criticism from industry players who argued it unfairly burdened financial institutions. The crypto community's dissatisfaction led to a Congressional Review Act resolution opposing the measure, although it was vetoed by then-President Joe Biden.
A New Chapter for Crypto Regulation
SEC Commissioner Hester Peirce, a long-time critic of SAB 121, announced its withdrawal on Thursday. Peirce has been vocal about the challenges posed by the SEC’s lack of comprehensive guidance on how securities laws apply to cryptocurrencies. She argued that using an accounting bulletin to address such nuanced issues was inappropriate and impractical.
Peirce, now leading the SEC’s newly established crypto task force, sees the rescission as a step toward more effective regulation. "This withdrawal is a reflection of our commitment to fostering clarity and fairness in the evolving crypto landscape," she stated.
Industry Reactions
The removal of SAB 121 has been welcomed by many in the crypto sector, who see it as a move toward more balanced and practical regulatory oversight. Institutions are now looking to align with FASB and international standards, a shift that may reduce operational burdens while maintaining investor protections.
This latest development signals the SEC's evolving approach to cryptocurrency regulation, with a focus on refining policies to address the unique challenges posed by digital assets. Whether this new direction fosters greater trust and innovation in the crypto space remains to be seen.