FameEX Hot Topics | SEC Rescinds Controversial Crypto Accounting Rule SAB 121

On January 23, the U.S. Securities and Exchange Commission (SEC) rescinded its controversial rule, SAB 121, which had required financial firms holding cryptocurrency on behalf of customers to report these assets as liabilities on their balance sheets. The cancellation of the rule was confirmed through a new Staff Accounting Bulletin issued by the SEC.

SAB 121, first introduced in March 2022, had sparked significant opposition within the crypto industry, which argued that the rule would complicate the administration of digital assets. The rule required firms to recognize the crypto holdings as liabilities, even though they were technically customer-owned assets, adding a layer of complexity to accounting practices. Critics, including financial services professionals and lawmakers, deemed the measure unnecessary and disruptive.

SEC Commissioner Hester Peirce, a key advocate for crypto-friendly policies, celebrated the cancellation of the rule with a post on social media, saying, "Bye, bye SAB 121! It’s not been fun." Peirce had long criticized the rule as an overreach by the SEC, and her post reflected the relief felt by many within the crypto community.

Lawmakers also expressed satisfaction with the SEC’s decision. House Financial Services Committee Chair, French Hill, called the rule “misguided,” stressing that holding reserves against assets in custody was not a standard practice in the financial industry. Representative Wiley Nickel and Senator Cynthia Lummis echoed similar sentiments, with Lummis stating that the rule had been detrimental to the banking industry and hindered the growth of digital assets in the U.S.

The cancellation of SAB 121 is seen as a significant shift in the SEC’s approach to crypto regulation under the leadership of acting chair Mark Uyeda. While a bill to repeal the rule had received bipartisan support, it was vetoed by President Joe Biden in 2024, although the veto was later upheld when the House failed to override it. This move reflects a broader reevaluation of the regulatory framework for digital assets in the U.S.

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