The US Securities and Exchange Commission (SEC) has removed the much-debated and unpopular crypto accounting guidance Staff Accounting Bulletin No. 121 (SAB 121) only a few days after the exit of the SEC chair Gary Gensler.
US SEC Withdraws Controversial SAB 121
The U.S. SEC has posted a notice on its website that SAB 121 that was released in 2022 was withdrawn with the release of Staff Accounting Bulletin No. 122. SAB 121 stated that companies that have custody of cryptocurrencies for their clients must recognize these crypto-assets as liabilities in their financial statements.
The guidance had come under much criticism from the crypto industry and lawmakers, stating that the rule raised compliance costs and deterred banks from offering digital asset custody services. Meanwhile, the SEC noted that instead of following the guidance provided in the statement, entities should continue to use the Financial Accounting Standards Board (FASB) or International Accounting Standards (IAS) to account for the crypto assets.
Hester Peirce, a SEC commissioner and now the head of the agency’s recently created crypto unit, expressed support for the move. “Bye, bye SAB 121! It’s not been fun,” Peirce shared on X (previously Twitter) on Thursday. She had earlier described it as a rather rigid policy that is disadvantageous to the growth of innovation.
Criticism and Legal Challenges Surrounding SAB 121
Since its introduction, SAB 121 has been criticized by the crypto industry and members of both parties in Congress. Critics had complained that the rule was introduced in the absence of a proper public consultation process and that it was aimed at firms in the digital asset industry specifically. The banking industry also voiced out its concern, saying that the rule hampers their capacity to give out custodial services for the digital assets.
The US SEC’s former chairman Gary Gensler, who backed the rule, said it was needed to safeguard investors in case of bankruptcies. Gensler provided examples of bankruptcy courts claims that customer cryptocurrency was not shielded from creditors, and, therefore, the need to put more measures in place.
Nonetheless, in 2024, Congress tried to repeal SAB 121 through a bipartisan resolution by passing it in both the House and the Senate. However, the resolution was vetoed by then President Joe Biden. It remained effective up to the Thursday announcement in light of leadership switch at the SEC as well as beginning of a new administration under pro-crypto President Donald Trump who has affirmed his intention to make US a home for crypto.
Leadership Change Marks New Direction for the US SEC
Gary Gensler has stepped down as the US SEC Chair this week, and Mark Uyeda, the Republican Commissioner, has taken over as the acting chair. On Tuesday, Uyeda released members of the crypto task force led by Hester Peirce to tackle the crypto asset regulation.
“The SEC has primarily relied on enforcement actions to regulate crypto, which has created uncertainty,” the SEC said in a statement. “Clarity and practical solutions for those seeking compliance have been elusive.”
The task force wants to introduce a clearer and more predictable approach to regulating cryptocurrencies. This change has been made after a long time of criticism that Gensler has taken a reactive and punitive approach while at the SEC.
Industry and Lawmakers Welcome the Decision
The crypto industry and banking sector have hailed the withdrawal of SAB 121 as a move towards promoting innovation and decreasing the regulatory burden.
Paige Pidano Paridon, co-head of the Bank Policy Institute’s regulatory affairs, said that the decision would allow the banks to regain their capacity for being the secure guardians of digital assets.
At the same time, the lawmakers who voted against SAB 121 also announced their support. Pro-crypto Republican Senator Cynthia Lummis, the new digital assets subcommittee chair from Wyoming called the rule “disastrous” and celebrated its removal. Mike Flood, the representative who proposed a resolution to repeal SAB 121 in 2024, characterized the withdrawal as a positive sign of bipartisan support and shift in US crypto policy.
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