SEC withdraws accounting guidance on safeguarding crypto assets

The Securities and Exchange Commission has rescinded a Staff Accounting Bulletin on safeguarding cryptocurrency assets that had been criticized by the industry and even by some of its own commissioners. 

In Staff Accounting Bulletin 122, the SEC essentially withdrew some of the interpretive guidance in Staff Accounting Bulletin 121, which had been issued in 2022. The move is another sign of a more crypto friendly environment in the Trump administration. Trump has named Paul Atkins, a former SEC commissioner who has been a strong crypto proponent, as the next SEC chairman after the departure on Inauguration Day of Gary Gensler, who had led an enforcement crackdown on the industry.

SAB 121 had provided guidance for companies holding crypto assets on the risks they faced, including technological, regulatory and legal risks, and how they should account for their obligations to safeguard crypto assets for their users, along with the disclosures they should provide to the SEC staff. The guidance said companies should present a liability on their balance sheet to reflect their obligation to safeguard the crypto assets held for their users.

The new Staff Accounting Bulletin, SAB 122, rescinds the interpretive guidance and says an "entity that has an obligation to safeguard crypto-assets for others should determine whether to recognize a liability related to the risk of loss under such an obligation, and if so, the measurement of such a liability, by applying the recognition and measurement requirements for liabilities arising from contingencies" citing the Financial Accounting Standards Board's standard on loss contingencies, as well as an applicable international accounting standard. The rescission could be done on a fully retrospective basis in annual periods beginning after Dec. 15, 2024, or companies can elect to effect the rescission in any earlier interim or annual financial statement period included in filings with the SEC after the effective date of the latest SAB. The guidance says entities should include clear disclosure of the effects of a change in accounting principle upon initial application of this rescission.

The original Staff Accounting Bulletin had drawn opposition in Congress, with both the Senate and House voting to repeal it last year. However, President Biden soon vetoed the bill.

SEC commissioner Hester Peirce has opposed the Staff Accounting Bulletin. She was named Monday to head a new crypto task force at the SEC by acting chair Mark Uyeda and posted on X about the withdrawal. "Bye, bye SAB 121! It's not been fun," she wrote, linking to the new Staff Accounting Bulletin.

A banking group also praised the move. "We welcome the SEC's decision to rescind Staff Accounting Bulletin 121," said Paige Pidano Paridon, senior vice president and co-head of regulatory affairs at the Bank Policy Institute, in a statement. "Today's decision restores banks' ability to serve as a trusted and secure option for clients that choose to custody digital assets."