What You Need to Know 

• Controversial Securities and Exchange Commission accounting guidance known as SAB 121 has been rescinded. 
• SAB 121 has been viewed as a significant obstacle preventing banks from providing custody services relating to crypto assets. While assets held under a custodial or trust arrangement are generally not reported on the balance sheet of the custodian, SAB 121 indicated that SEC staff expected crypto assets to be recorded as assets and liabilities on the balance sheet of the safeguarding entity. 
• Companies that safeguard their customers’ crypto assets should carefully assess the proper treatment of those assets under applicable accounting standards. Entities should apply the updated guidance for all annual periods beginning after December 15, 2024, but may also retroactively apply the updated guidance to earlier periods provided they disclose the effects of the change in accounting principle. 

On January 23, 2025, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 122 (SAB 122), rescinding the controversial SAB 121.  

Published in March 2022, SAB 121 stated SEC staff’s view that a company subject to SEC filing or reporting obligations that safeguards crypto assets for its users should record a liability and corresponding asset on its balance sheet, reflecting the value of the assets. Critics of the bulletin have said that SAB 121 deviated from longstanding principle of treating property held in custody as “off-balance sheet,” creating disparate treatment for crypto assets compared to other financial assets and making it financially impractical for banks to offer custodial or trust services regarding their customers’ crypto assets.  

SAB 121’s rescission comes after a years-long debate between Congress and the executive branch as to the validity of the bulletin. In August 2022, Senator Cynthia Lummis urged the U.S. Government Accountability Office (GAO) to investigate SAB 121, and indeed, the GAO published a formal decision concluding the SEC failed to follow procedures under the Congressional Review Act (CRA) requiring the submission of agency rules to Congress. 

Following the GAO report, Congress passed a bipartisan resolution to overturn the policy pursuant to the CRA. However, President Biden vetoed the resolution at the time, and there were not enough Congressional votes to override the veto.  

What’s Next 

In rescinding SAB 121, SAB 122 restores the prior status quo that crypto asset safeguarding activities can be conducted consistent with the treatment of other types of client assets. However, SAB 122 reminds entities that safeguard others’ crypto assets to apply U.S. generally accepted accounting principles or International Financial Reporting Standards Accounting Standards, as applicable, when determining whether to recognize a liability related to the risk of loss and measuring such a liability. 

Moreover, SAB 122 reminds companies that they should continue to consider existing requirements to provide disclosures that allow investors to understand the company’s obligation to safeguard crypto assets held for others, including in their business description, risk factors, MD&A, and in the footnotes to their financial statements. 

Entities should apply the updated guidance from SAB 122 for all annual periods beginning after December 15, 2024, but may also retroactively apply the updated guidance to earlier periods on filings with the SEC, provided that they disclose the effects of the change in accounting principle. 

In the wake of the repeal of SAB 121, we expect that there will be increased flexibility for traditional custodians and trustees to safeguard their customers’ crypto assets without straining their balance sheets.