Major Victory: SEC Repeals Controversial Crypto Rule SAB 121

The U.S. Securities and Exchange Commission (SEC) has made a significant policy reversal by rescinding its controversial Staff Accounting Bulletin (SAB) 121, marking a pivotal shift in the regulatory landscape for cryptocurrencies under the new leadership. This move follows the departure of former SEC Chair Gary Gensler and introduces a potentially more accommodating stance towards crypto under the guidance of Commissioner Hester Pierce, who has taken the helm of the SEC’s newly established crypto task force.

SAB 121, which was introduced in March 2022, had imposed stringent requirements on banks and other public companies to account for crypto assets held for clients as liabilities on their balance sheets. This was widely criticized by the crypto community for deterring financial institutions from engaging with digital currencies due to the increased accounting complexities and costs.

The new bulletin, SAB 122, officially rescinds the guidance from SAB 121. It shifts the approach, allowing firms to use broader accounting standards like U.S. GAAP for contingencies and International Financial Reporting Standards (IFRS) to handle obligations related to crypto custody. This change is seen as a relief for financial institutions, potentially opening up more avenues for banks to incorporate crypto services without the previous stringent conditions.

Hester Pierce, often referred to as “Crypto Mom” for her advocacy of clearer and more constructive crypto regulations, celebrated the decision on social media, signaling her long-standing critique of SAB 121. Pierce has repeatedly argued that the guidance was misaligned with the SEC’s broader mission, particularly due to the lack of comprehensive regulatory clarity for cryptocurrencies.

This policy shift comes after a bipartisan effort in Congress in 2024 to repeal SAB 121 was vetoed by then-President Joe Biden, emphasizing the previous administration’s cautious approach to cryptocurrency regulation. However, with Donald Trump’s inauguration on January 20, following a campaign that highlighted pro-crypto policies, the regulatory environment has seen a dramatic shift. Trump’s administration has already begun engaging with crypto through an executive order aimed at promoting U.S. leadership in digital assets, including the establishment of a working group to explore crypto regulation and a national crypto stockpile, while explicitly opposing the creation of a central bank digital currency (CBDC).

Senator Cynthia Lummis has strongly endorsed the regulatory shift, calling SAB 121 a disaster for the banking industry that stifled American innovation and slowed the progress of digital assets. She expressed her enthusiasm for its repeal and emphasized the importance of refocusing the SEC on its core mission. Her endorsement of the SEC’s new direction underlines a broader sentiment among some U.S. lawmakers for a regulatory framework that fosters rather than restricts the growth of blockchain technology and cryptocurrencies.

This development underlines a new era of crypto regulation in the U.S., where the SEC, led by figures like Pierce and interim Chairman Mark Uyeda, might foster a more nuanced and possibly supportive environment for digital assets. This could encourage more traditional financial institutions to explore and integrate crypto services, potentially catalyzing significant growth in the sector.

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