The regulatory landscape surrounding cryptocurrency custody shifted with the rescission of Staff Accounting Bulletin (SAB) 121 and the introduction of SAB 122 by the U.S. Securities and Exchange Commission (SEC) . This transition marks a significant turning point for financial institutions, particularly banks, seeking to provide crypto custody services. Initially issued in March 2022, SAB 121 imposed a controversial accounting requirement that forced financial institutions to report customer-held crypto assets as liabilities on their balance sheets. This created substantial regulatory burdens and discouraged banks from engaging in digital asset custody. However, in 2025, after years of opposition from industry stakeholders, policymakers, and financial experts, the SEC officially rescinded SAB 121 and replaced it with SAB 122, which adopts a more risk-based and balanced approach to crypto custody accounting. Cointelegraph, in a recent post , shared an insight into the differences between SAB 121 and SAB 122. The Burden of SAB 121 SAB 121, introduced in 2022, required that financial institutions record the full value of customer crypto assets as both an asset and a corresponding liability on their balance sheets. The SEC justified this rule by citing the risks associated with crypto custody, including cybersecurity threats, legal uncertainties, and operational complexities. However, this approach was met with significant opposition due to several key issues: Inconsistent with Traditional Accounting Principles: Traditional custody services—whether for cash, securities, or precious metals—do not require banks to list customer assets as liabilities. Crypto custody under SAB 121 was treated differently, even though banks are just custodians rather than owners of the assets. This created inconsistencies with established accounting frameworks such as FASB ASC 450-20 (Contingencies) and IAS 37 (Provisions, Contingent Liabilities, and Contingent Assets). Increased Complexity and Reporting Burden: By requiring financial institutions to recognize the full value of customer crypto assets as liabilities, SAB 121 introduced onerous reporting obligations disproportionate to the risks involved. This added unnecessary complexity to financial statements and made compliance costly for institutions. Discouraging Banks from Entering Crypto Custody: Due to the unfavorable accounting treatment under SAB 121, many banks and traditional financial institutions avoided offering crypto custody services altogether. The rule significantly impacted the development of regulated crypto infrastructure, pushing customers toward non-bank custodians, which often lacked the same level of security and oversight. Legislative and Industry Pushback: SAB 121 faced bipartisan criticism from U.S. lawmakers, regulatory agencies, and the banking sector. Critics argued that the rule was imposed without adequate public consultation and hindered innovation in the financial ecosystem. Over time, mounting pressure from Congress, the Financial Accounting Standards Board (FASB), and industry stakeholders forced the SEC to reconsider its stance. SAB 122: A More Balanced Approach Recently, after extensive deliberations, the SEC officially rescinded SAB 121 and introduced SAB 122, a new accounting framework for crypto custody. The key improvements in SAB 122 include: Liability Reporting Based on Risk Exposure: Unlike SAB 121, which required institutions to report the full value of customer crypto holdings as liabilities, SAB 122 mandates liability recognition only for actual risk exposure (e.g., potential loss events such as fraud, cybersecurity breaches, or operational failures). This shift aligns crypto custody with other financial instruments where liability reporting is based on contingent risks rather than asset value. Simplified and Risk-Focused Reporting: SAB 122 streamlines the accounting process by eliminating the excessive complexity introduced by SAB 121. Instead of inflating financial statements with large, artificial liabilities, the new standard allows financial institutions to focus on risk-based disclosures, ensuring that investors and regulators receive relevant information without unnecessary distortions. Alignment with Established Accounting Standards : One of the most significant benefits of SAB 122 is that it aligns crypto custody accounting with traditional accounting standards, such as FASB ASC 450-2 which addresses the recognition of contingent liabilities and risk-based loss estimates, and IAS 37 which ensures that contingent liabilities are reported only when there is a probable and measurable loss, rather than blanket reporting of all customer assets. This alignment improves financial transparency and comparability between crypto and traditional asset classes. We are on twitter, follow us to connect with us :- @TimesTabloid1 — TimesTabloid (@TimesTabloid1) July 15, 2023 Encouraging Banks to Enter Crypto Custody: By removing the restrictive balance sheet treatment of customers’ crypto holdings, SAB 122 makes it easier for banks to provide crypto custody services without facing disproportionate financial and regulatory burdens. This paves the way for greater institutional adoption of digital assets, potentially driving new investment products, regulated custodial solutions, and enhanced consumer protections in the crypto market. Implications for the Crypto Industry and Financial Sector The rescission of SAB 121 and the introduction of SAB 122 represent a major win for the crypto industry, traditional banks , and financial institutions. Some of the key implications include: Increased Institutional Adoption: Banks and financial institutions that previously hesitated to enter the crypto custody market due to SAB 121’s restrictive requirements may now reconsider offering crypto custody services under the new, more favorable framework. This could lead to a surge in regulated crypto offerings and improved market stability. Enhanced Consumer Protection: As more regulated banks enter the crypto custody space, consumers will benefit from greater security, compliance, and investor protection. The presence of well-regulated custodians can reduce reliance on unregulated entities, mitigating risks such as fraud, insolvency, and mismanagement. Greater Regulatory Clarity: SAB 122 brings much-needed regulatory clarity to crypto custody, aligning accounting standards with traditional custodial practices. This reduces uncertainty for institutions and encourages more mainstream financial firms to integrate digital assets into their services. Potential Impact on Crypto Prices: With more institutional involvement, the crypto market could experience increased liquidity, reduced volatility, and higher investor confidence. The entry of major banks into crypto custody may also pave the way for spot Bitcoin ETFs , tokenized assets, and new financial products, further boosting market participation. The shift from SAB 121 to SAB 122 is a landmark moment in the evolution of crypto regulation. By replacing an overly burdensome accounting rule with a more balanced, risk-based approach, the SEC has removed a significant barrier to institutional adoption of digital assets. While challenges remain—such as ensuring robust security protocols and navigating evolving regulatory landscapes—SAB 122 lays the foundation for a more mature, transparent, and scalable crypto custody ecosystem. As banks and financial institutions begin to re-enter the space, we can expect greater institutional trust, increased market participation, and a more resilient crypto financial system in the years ahead. The rescission of SAB 121 was long overdue. With SAB 122, the financial world has acknowledged that crypto deserves the same regulatory fairness as traditional financial instruments—ushering in a new era for digital asset custody. Disclaimer : This content is meant to inform and should not be considered financial advice. The views expressed in this article may include the author’s personal opinions and do not represent Times Tabloid’s opinion. Readers are urged to do in-depth research before making any investment decisions. Any action taken by the reader is strictly at their own risk. Times Tabloid is not responsible for any financial losses. Follow us on Twitter , Facebook , Telegram , and Google News The post Here’s What You Need To Know About SAB 122, The New Crypto Custody Regulation appeared first on Times Tabloid .
