U.S. Regulator Scraps SAB 121 Rule, Opening Doors for Institutional Crypto Custody

The Securities and Exchange Commission has officially eliminated Staff Accounting Bulletin 121, replacing it with a new directive called SAB 122. This marks a significant shift in how mainstream U.S. financial institutions can approach digital asset management. Banks and financial firms will now have the pathway to hold cryptocurrencies, though they must still properly disclose the associated risks and operational responsibilities tied to these holdings.

When the Change Takes Effect

While institutions can opt to adopt these new guidelines immediately, the retroactive application begins with fiscal years commencing after December 15, 2024. This timeline gives financial organizations a window to prepare their systems and processes accordingly.

Financial Sector’s Preparedness

Bank of America’s chief executive Brian Moynihan signaled that the nation’s financial institutions stand ready to move into this space. However, he emphasized that such participation remains conditional on continued improvements to the regulatory environment and clearer rules around digital assets. His statement reflects the industry’s long-standing frustration with ambiguous guidance that has deterred many institutions from entering the space.

Political Reactions and Administrative Shifts

The decision resonates particularly within Congress, where House Financial Services Committee Chair French Hill praised the outcome. Hill characterized SAB 121 as misguided policy, pointing out that maintaining capital reserves for custody assets contradicts standard banking practices. He credited the current administration’s proactive stance on digital asset regulation.

SEC Commissioner Hester Peirce echoed the sentiment with a notably casual social media comment: “Bye, bye SAB 121! It’s not been fun.” The remark underscores how contentious this accounting requirement had become within regulatory circles.

These shifts align with recent personnel changes at the SEC, including Mark Uyeda’s assumption of acting chair responsibilities. Uyeda has signaled a more accommodating posture toward the crypto industry compared to his predecessor Gary Gensler, whose leadership was marked by aggressive enforcement positions.

The Rule That Stirred Controversy

SAB 121, enacted in March 2022, forced financial service providers to treat customer-held digital assets as balance sheet liabilities. The stipulation created substantial compliance burdens and discouraged banks from offering custody services. The requirement generated fierce pushback across both major parties in Congress. A bipartisan legislative effort to overturn SAB 121 reached Biden’s desk in May 2024, only to face a presidential veto.

Later that year, Republican lawmakers renewed the push, urging then-SEC Chair Gensler to rescind the rule independently.

Broader Digital Asset Strategy

These developments coincide with the Trump administration’s announcement of a comprehensive digital assets framework. The administration has issued a presidential executive order establishing the Presidential Working Group on Digital Assets Markets, tasked with constructing a comprehensive regulatory structure for cryptocurrencies. The working group is also mandated to establish a national digital asset reserve—language suggesting the portfolio may encompass more than just Bitcoin.

The cumulative effect of these regulatory shifts could reshape how mainstream financial institutions approach and integrate digital assets into their operations over the coming years.