SEC Rescinds Crypto Accounting Guidance
Commentary by Eric Martin
The SEC rescinded Staff Accounting Bulletin No. 121 ("SAB 121"), which required firms that provide custody for crypto-assets to include them as liabilities on their balance sheets.
In the new Staff Accounting Bulletin 122, the SEC clarified that entities should now assess any liabilities related to safeguarding risks under broader accounting standards, such as FASB ASC Subtopic 450-20 or IAS 37.
In a statement, SIFMA commended the SEC for the rescission of SAB 121, noting that the SEC issued SAB 121 "without stakeholder engagement or consultation with the prudential regulators." SIFMA said the rescission will "benefit investors, financial markets, and the broader public by restoring the ability of well-regulated financial institutions to provide digital asset custodial services."
Commentary
SAB 121 is no more: the SEC's staff accounting bulletin requiring public companies to report bitcoin and crypto holdings for customers in a custodial manner as liabilities has been rescinded. Though its initial repeal was vetoed by President Biden last year, new SEC leadership was quick to act in doing away with a much-disliked policy.
Now, the regulatory environment is looking increasingly favorable for crypto adoption. With SAB 121 gone, banks will no longer have to record cryptocurrencies as liabilities on their balance sheets—thus lending credence to the idea of more widespread crypto adoption.
However, the SAB 121 repeal doesn't just signal potential bank/custodial entity entry into crypto; it also signals that the new SEC is looking to work with the crypto industry to promote sensible policies. SAB 121 was rebuked by the GAO for valid reasons—and now there's a chance to start fresh. The action previews the dismantling of Operation Chokepoint 2.0, which is the term the industry ascribed to federal banking agencies exerting pressure on banks to avoid providing services for the crypto industry.
Related Articles
-
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 a 228-184 vote, the House of Representatives failed to overturn President Biden's veto of a joint congressional resolution of disapproval on SEC Staff Accounting Bulletin No. 121.
-
House Financial Services Committee Chair Patrick McHenry urged representatives to override President Biden's veto of a joint congressional resolution of disapproval on SEC Staff Accounting Bulletin No. 121.
-
President Biden vetoed H.J.Res.109, a congressional resolution of disapproval on SEC Staff Accounting Bulletin No. 121.
-
The U.S. House of Representatives passed a resolution to "disapprove" SEC Staff Accounting Bulletin No. 121, which prevents banks from providing custodial services to "digital assets [investors by requiring them to keep] those assets on their balance sheet."
-
House Financial Services Committee members Mike Flood (R-NE), Ritchie Torres (D-NY), French Hill (R-AR) and Wiley Nickel (D-NC) introduced the Uniform Treatment of Custodial Assets Act. The proposed legislation would prohibit financial institutions from including crypto assets held in their custody as a liability on their balance sheet.
-
In a letter to the Federal Reserve, the FDIC, the OCC and the NCUA, Senator Cynthia M. Lummis (R-WY) and Representative Patrick McHenry (R-NC) criticized SEC guidance on the accounting treatment of cryptocurrency assets by custodians.
-
In an Accounting Bulletin ("SAB"), SEC staff delineated an entity's accounting obligations as to crypto-assets that the entity holds in custody for others.