The Securities and Exchange Commission (SEC) has officially overturned a contentious rule that required financial institutions holding cryptocurrencies to classify them as liabilities on their balance sheets.
In a new Staff Accounting Bulletin issued on January 23, the SEC announced it would revoke the guidance introduced in SAB 121. This directive, first published in March 2022, had been a point of contention for the crypto industry, which argued it imposed unnecessary burdens.
SEC Commissioner Hester Peirce, who has been a vocal advocate for crypto, celebrated the decision on X (formerly Twitter), stating, “Good riddance, SAB 121! It’s been anything but enjoyable.”
SAB 121 mandated that firms holding cryptocurrency on behalf of their clients record these assets as liabilities. This directive drew widespread criticism from industry players, who claimed the policy made handling digital assets significantly more complex.
Representative French Hill, chair of the House Financial Services Committee, expressed his approval of the SEC’s decision to rescind the rule. “The misguided SAB 121 rule is finally gone,” he shared on X, emphasizing that requiring reserves against custodial crypto assets is not standard practice in traditional financial services.
Other critics, including Representative Wiley Nickel, argued that the rule posed risks to the U.S. banking sector. They warned it could hinder banks’ ability to manage crypto-related exchange-traded products (ETPs), potentially creating vulnerabilities by centralizing crypto custodial services with non-bank entities.
Senator Cynthia Lummis, a strong proponent of digital assets, also welcomed the move. She described SAB 121 as detrimental to the banking industry and a roadblock to American progress in cryptocurrency innovation. “This is a big win for the industry and a chance for the SEC to refocus on its core mission,” she said.
The repeal of SAB 121 marks a pivotal development for the SEC, now under the leadership of Acting Chair Mark Uyeda. Notably, this decision represents the first major regulatory shift under Uyeda’s tenure.
Efforts to overturn SAB 121 initially gained bipartisan support through proposed legislation in Congress. However, the bill faced hurdles after being vetoed by former President Joe Biden on June 1, with a subsequent attempt to override the veto falling short by 60 votes in the House.
For the crypto industry, the elimination of SAB 121 signals a step toward a more accommodating regulatory environment, one that stakeholders hope will foster innovation rather than stifle it.
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