The SEC rescinded its cryptocurrency accounting guidance, Staff Accounting Bulletin (SAB) 121, on Jan. 23, 2025. Issued in March 2022, SAB 121 required crypto custodians to record digital assets held for customers as liabilities on their balance sheets. Some industry participants and lawmakers expressed concerns that the guidance could impact regulated entities’ willingness to offer crypto custody services. In May 2024, former President Biden vetoed a bipartisan bill that would have rescinded SAB 121.

SAB 122, which formally rescinds SAB 121, directs custodians to assess potential liabilities of digital assets held, rather than requiring liabilities to be recorded for those assets. As part of the assessment, custodians must determine whether to recognize a liability related to the risk of loss under their custody arrangements. When recognizing and measuring the liability, custodians must follow the standard accounting rules of the Financial Accounting Standards Board Accounting Standards Codifications under U.S. Generally Accepted Accounting Principles or International Accounting Standards under International Financial Reporting Standards. This change may encourage banks to offer digital asset custody services, which might lead to more banks and financial institutions entering the crypto custody market.

The decision to rescind SAB 121 follows the recent appointment of acting SEC Chairman Mark Uyeda and aligns with a recent executive order from President Trump that established a working group to develop a federal framework for digital assets. The move is also consistent with the SEC’s decision, under Uyeda’s leadership, to form a crypto task force led by SEC Commissioner Hester Peirce to craft clear and practical regulatory frameworks for the industry. These developments mark a significant shift from the previous administration’s approach to crypto regulation.