New SEC SAB 122 policy allows banks to custody crypto assets

The SEC has released Staff Accounting Bulletin (SAB) No. 122, which effectively overturns the earlier SAB 121 policy that discouraged banks from holding Bitcoin and other crypto-assets in custody. This change enables banks and traditional financial institutions to provide crypto services more readily, without the significant compliance and financial challenges that were previously imposed.

With SAB 121, institutions were required to record customer crypto-assets as both assets and liabilities on their balance sheets. SAB 122 now allows banks to reassess their obligations, considering risks such as theft or fraud as contingent liabilities instead of fixed balance sheet liabilities. This adjustment streamlines compliance and lowers capital requirements, facilitating the custody of digital assets by banks.

SEC Commissioner Hester Peirce expressed her excitement about the update by tweeting, “Goodbye SAB 121! It hasn’t been enjoyable | Staff Accounting Bulletin No. 122.” ETF analyst James Seyffart also commended the decision, describing it as the right step for the crypto industry.