What was SAB 121 and why was it rescinded?

SAB 121 was an accounting rule of thumb, not a law, but it shaped who could hold crypto for others in the United States. Staff Accounting Bulletins are interpretations from the SEC's staff, and SAB 121 told reporting companies how to show crypto they safeguard for platform users. This guide explains what it required, why banks objected, and what replaced it.

What did SAB 121 require?

SAB 121 asked firms that hold crypto for customers to record those assets as liabilities on their balance sheets, Cointelegraph summarized. Duane Morris explained the practical effect for banks. A bank that was a reporting company had to show both an asset and a matching liability for crypto held in custody, even though it did not own the crypto, and had to hold capital against that entry. That made crypto custody costly for banks compared with other assets they safeguard, which do not usually appear on their own balance sheet.

Why was SAB 121 controversial?

Critics said it treated crypto differently from every other custodied asset. Cointelegraph reported that Representative French Hill called it misguided, saying reserving against custodied assets is not standard practice, while others warned it could stop US banks from holding the assets behind crypto exchange-traded products at scale, concentrating that business in a few firms.

Congress passed a resolution, H.J. Res. 109, to disapprove SAB 121 by large margins in both chambers in 2024. President Biden vetoed it, and the House failed to override the veto.

How did SAB 122 change crypto custody accounting?

On January 23, 2025, the SEC staff issued SAB 122, which rescinds the SAB 121 guidance. According to the bulletin, it took effect on January 30, 2025. Duane Morris noted it applies to annual periods beginning after December 15, 2024, and can be applied to earlier periods.

SAB 122 did not simply erase the question. It says a firm that safeguards crypto for others should decide whether to recognize a liability for the risk of loss, and how to measure it, using the standard rules for loss contingencies under US GAAP or IFRS. Duane Morris said a one-to-one liability for the full value is now unlikely. Commissioner Hester Peirce, who led the SEC's crypto task force, welcomed the change, Cointelegraph reported. The task force is covered in what the SEC crypto task force is.

What did rescinding SAB 121 mean for banks?

Removing SAB 121 took away an accounting barrier, but banks still answer to their own regulators on whether and how they may offer crypto custody, a separate track described in banks and crypto.

This guide explains accounting guidance and is not accounting or legal advice.