The Securities and Exchange Commission’s (SEC) reversal of Staff Accounting Bulletin (SAB) 121 has been met with relief by the US cryptocurrency and banking sectors. The now-rescinded guidance had presented a significant obstacle for banks seeking to custody digital assets.
According to cryptocurrency journalist Eleanor Terrett, industry insiders and banking professionals viewed SAB 121 as a deliberate attempt by SEC Chair Gary Gensler to restrict traditional banks’ involvement in the cryptocurrency market. This move was perceived as part of a broader Biden administration strategy to curb the industry through stringent regulation.
The controversy surrounding SAB 121 extended beyond the crypto industry. Even established accounting professionals expressed confusion, with one prominent figure asserting that the bulletin effectively created a new accounting standard for digital assets, exceeding the SEC’s authority.
Terrett spoke exclusively with Jim Kroeker, former vice chair of the Financial Accounting Standards Board (FASB) and SEC chief accountant from 2009-2012. Kroeker argued that the SEC’s claim of SAB 121’s consistency with existing Generally Accepted Accounting Principles (GAAP) was inaccurate. “This created a new and unique accounting model for crypto custody arrangements without going through the due process required to otherwise establish GAAP,” he stated. GAAP, established by the FASB, are the mandatory accounting rules for all US public companies, ensuring consistency and transparency in financial reporting. Kroeker emphasized that staff accounting bulletins should align with existing FASB standards.
Kroeker further criticized the guidance as “punitive accounting,” suggesting the SEC was using accounting practices to discourage crypto-related business activity.
In response to a request for comment, an SEC spokesperson stated that the change ensures companies are no longer penalized for providing crypto custody services.
Despite the positive development, sources within major banks informed Terrett that while the rollback of SAB 121 is a welcome first step, further action is required. They indicate that the Federal Reserve and the Office of the Comptroller of the Currency must also adopt a more crypto-friendly stance, similar to that of the Trump administration, before banks can fully engage in crypto payments and custody services.
