SEC Chief Accountant Hedges on Application of Crypto Accounting Guidance

Paul Munter, Chief Accountant of the SEC, described complexities around accounting for crypto-asset safeguarding obligations, highlighting new fact patterns "not contemplated by Staff Accounting Bulletin 121." 

In remarks at the 2024 AICPA & CIMA Conference on Banks & Savings Institutions, Mr. Munter said SAB 121, which concerns accounting guidance for "entities that have obligations to safeguard crypto-assets held for their platform users," may not apply when bank holding companies or broker-dealers use robust risk mitigation strategies, obtain legal opinions and create bankruptcy-remote structures to protect client assets. He highlighted examples where bank holding companies and broker dealers successfully demonstrated that they did not need to recognize a safeguarding liability under SAB 121, and as a result, "should not recognize a liability on its balance sheet [to reflect] an obligation to safeguard crypto-assets [held for others]."

He said that while the SEC's views about SAB 121 remain unchanged, there is a need for flexibility in its application. He emphasized that each case is fact-specific, and called for a nuanced approach rather than a one-size-fits-all application of SAB 121.

Mr. Munter suggested that greater clarity in assessing the scope of SAB 121 could prevent overgeneralization and ensure appropriate risk reporting. He reiterated the need for entities to consult with the SEC and disclose relevant risks in their SEC filings to ensure transparency for investors and touted the SEC's willingness to adapt its views based on unique risk factors and thorough legal evaluations presented by entities.