The U.S. Securities and Exchange Commission (SEC) has repealed a contentious rule that required financial firms holding cryptocurrency for customers to record these assets as liabilities on their balance sheets.
On January 23, the SEC announced the cancellation through a new Staff Accounting Bulletin, which stated it would “rescind the interpretive guidance” of SAB 121. The rule, first introduced in March 2022, faced strong opposition from the crypto industry.
Industry Pushback on SEC’s SAB 121 Mandate
SAB 121 had mandated financial firms to treat crypto assets held for customers as liabilities, a move criticized for complicating the process of holding digital assets. The rule’s opponents argued that such requirements were unnecessary and inconsistent with standard financial practices.
“Bye, bye SAB 121! It’s not been fun,” said SEC Commissioner Hester Peirce, the agency’s lead on crypto matters, in a post on X (formerly Twitter).
Representative Wiley Nickel expressed concerns that the rule discouraged American banks from handling crypto at scale, potentially giving non-bank entities greater control and increasing risks.
Bipartisan Support for Repeal
The cancellation of SAB 121 has drawn applause from lawmakers on both sides of the aisle. Representative French Hill, Chair of the House Financial Services Committee, celebrated the decision, stating, “Holding reserves against the assets held in custody is NOT standard financial services practice.”
Similarly, Senator Cynthia Lummis welcomed the move, calling SAB 121 “disastrous” for the banking sector. “I am THRILLED to see it repealed and get the SEC back on track to fulfilling its intended mission,” she said.
A Rocky Legislative Path
Efforts to repeal SAB 121 initially gained bipartisan support in Congress. However, a bill aiming to overturn the rule was vetoed by President Joe Biden on June 1, and an attempt to override the veto fell short in the House by 60 votes.
The SEC’s decision to rescind the rule under acting Chair Mark Uyeda marks the agency’s first major action in its evolving approach to cryptocurrency regulation. For the crypto industry, this is a significant victory, signaling potential progress in addressing regulatory challenges.
