SEC's SAB 122 Clears Path for US Banks to Offer Bitcoin Custody

The SEC has introduced new regulatory guidance with Staff Accounting Bulletin (SAB) No. 122, marking a pivotal change in the treatment of crypto-assets by banks and traditional financial institutions. This bulletin effectively cancels SAB 121, which had previously imposed stringent accounting requirements that discouraged banks from offering crypto custody services.

Banks Can Now Safely Custody Bitcoin

Under SAB 121, institutions holding crypto-assets for their customers were required to recognize both an asset and a liability for those holdings on their balance sheets. This approach complicated compliance and significantly increased the financial burden for institutions seeking to offer crypto services.

With the release of SAB 122, companies are now allowed to evaluate their obligation to safeguard these assets differently. Instead of rigidly recording crypto-assets as liabilities, banks can account for potential losses as contingent liabilities, such as those arising from theft or fraud. As SEC Commissioner Hester Peirce succinctly put it on X (formerly Twitter): “Bye, bye SAB 121! It’s not been fun.”

This change eliminates a major roadblock for banks, simplifying compliance and reducing capital requirements. As a result, traditional financial institutions can now safely and feasibly offer Bitcoin custody services.

Industry Leaders Applaud the Decision

The new guidance has garnered widespread support from industry experts. ETF analyst James Seyffart praised the move, writing, “Didn’t even need an executive order! Thank you Hester Peirce and Chairman Uyeda! This was the correct decision IMO.”

The crypto community—long eager for banks to embrace Bitcoin custody—has welcomed this development with enthusiasm. Michael Saylor of MicroStrategy also expressed his excitement, highlighting the broader implications for the crypto industry.

A Shift in US Crypto Regulations

The decision to issue SAB 122 is part of a broader shift in the US regulatory landscape for digital assets. This change follows a series of significant events, including:

  • In May 2024, both the House of Representatives and the Senate passed a resolution to repeal SAB 121, though it was vetoed by President Joe Biden.

  • Yesterday, the SEC established a dedicated crypto task force, led by Hester Peirce, to address emerging regulatory challenges.

  • Earlier today, President Trump signed a groundbreaking executive order advocating for the establishment of a US digital asset stockpile.

These developments signal a growing recognition of the importance of digital assets in the financial system. By removing unnecessary barriers and providing clearer guidance, the US government appears poised to foster significant growth in the crypto sector.

The Path Forward

SAB 122 grants banks and financial institutions the flexibility to decide how to handle safeguarding risks associated with crypto-assets. This newfound freedom is expected to encourage more institutions to explore Bitcoin custody services, paving the way for broader adoption of digital assets.

As US crypto regulations continue to evolve, the industry stands on the brink of unprecedented opportunities for innovation and expansion. The repeal of SAB 121 and the introduction of SAB 122 mark a turning point, signaling that the era of rigid constraints on crypto custody may be over.