The U.S. Securities and Exchange Commission (SEC) has withdrawn the controversial SAB 121 crypto accounting guidance following the departure of former chairman Gary Gensler. This decision marks a significant shift in the regulatory landscape for cryptocurrency, which has drawn mixed reactions since its inception.
Withdrawal of SAB 121
The SEC announced the retraction of SAB 121, originally published in 2022, coinciding with the release of Staff Accounting Bulletin No. 122. SAB 121 mandated that firms holding cryptocurrencies on behalf of clients classify these digital assets as liabilities in their financial statements.
Criticism and Legal Challenges
SAB 121 faced backlash from both the crypto industry and lawmakers, who argued that it increased compliance costs and hindered banks from providing digital asset custody services. The SEC clarified that organizations should continue to rely on standards from the Financial Accounting Standards Board (FASB) or the International Accounting Standards (IAS) for crypto asset accounting.
“Bye, bye SAB 121! It’s not been fun,” remarked Hester Peirce, supporting this decision as the new crypto unit’s head.
Leadership Transition Shapes New Governance
Following Gensler’s resignation, Republican Commissioner Mark Uyeda stepped in as acting chairman. Uyeda announced the formation of a crypto task force led by Hester Peirce, aimed at adopting a clearer and more predictable approach to cryptocurrency regulation.
The SEC acknowledged that its reliance on enforcement actions for crypto regulation created significant uncertainty for compliance-seekers.
Industry and Legislative Responses
The withdrawal of SAB 121 has been welcomed by the crypto industry and banking sector as a step towards innovation and reduced regulatory burden. Paige Pidano Paridon from the Bank Policy Institute stated that this decision allows banks to regain their capacity as secure custodians of digital assets.
Republican Senator Cynthia Lummis from Wyoming celebrated the repeal of what she called a “disaster.” Representative Mike Flood, who voted to rescind SAB 121 in 2024, described the withdrawal as a positive sign of bipartisan support and change in U.S. crypto policy.
The SEC’s retraction of SAB 121 indicates the start of a new era for cryptocurrency regulation in the U.S. The new leadership aims to foster a more flexible and innovative regulatory approach to support the growth of the crypto industry.
