SAB 121 Overturned – Possible Changes in Bank Regulations for Crypto

The revocation of Staff Accounting Bulletin 121 (SAB 121) by the U.S. Securities and Exchange Commission has had a significant impact on how banks can handle cryptocurrency assets. Previously, SAB 121 required reporting company banks to recognize both an asset and a liability for crypto custody activities, even if they were not the owners of the assets, resulting in the need to reserve capital on their balance sheets. Efforts were made in the past to undo this restriction, such as passing H.J. Res 109 to disapprove of SAB 121, but the resolution was vetoed by then-President Joseph Biden.

However, with the recent change in leadership at the SEC and the issuance of Staff Accounting Bulletin 122 on January 23, 2025, SAB 121 has been rescinded. This move has been met with approval from the American Bankers Association and other industry stakeholders, who see it as a positive step towards fostering growth and innovation in the banking sector. Despite this change, reporting companies are still cautioned to acknowledge liabilities related to crypto custody activities under applicable accounting principles.

While the removal of SAB 121 alleviates some of the burdens on banks, regulatory hurdles remain at the federal level. Guidance from agencies like the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB), and the Federal Deposit Insurance Corporation (FDIC) regarding banks engaging in cryptocurrency activities has been inconsistent. Although these agencies have not outright prohibited banks from providing services to cryptocurrency customers, they have expressed concerns about the risks associated with such activities.

The FDIC’s actions, including the issuance of private supervisory letters to financial institutions to pause or not expand their crypto-related activities, have raised questions about the treatment of digital asset companies in the banking sector. Coinbase Inc. filed a lawsuit to compel the FDIC to release information related to these pause letters, highlighting concerns about the FDIC’s stance on debanking crypto companies.

With the SEC no longer enforcing SAB 121, attention is shifting towards bank regulators to provide clearer guidance on cryptocurrency activities. Acting FDIC Chairman Travis Hill has expressed a commitment to ensuring law-abiding customers have access to banking services, signaling a potential shift towards a more transparent approach to fintech partnerships and digital assets. The FRB and OCC have also been involved in assessing the financial stability risks associated with crypto activities, paving the way for more actionable guidance from regulators in the future.