Today, the Securities and Exchange Commission (SEC) has pulled the plug on Staff Accounting Bulletin No. 121 (SAB 121), a rule that had tied crypto companies in regulatory knots since 2022.
This decision, announced through Staff Accounting Bulletin No. 122 (SAB 122) on January 23, removes the controversial guidance that forced platforms to account for safeguarding crypto-assets as liabilities.
The rescission directly affects how crypto companies report risks and obligations tied to safeguarding digital assets held on behalf of users.
What SAB 122 changes for crypto
The SEC’s new guidance removes the requirements imposed by Topic 5.FF under SAB 121. That bulletin forced crypto platforms to treat their obligation to safeguard users’ assets as liabilities, regardless of whether actual financial risks existed.
With SAB 122, that specific directive is gone. The Commission made it clear that entities should now determine any liabilities related to safeguarding risks under broader accounting standards like FASB ASC Subtopic 450-20 or IAS 37.
Under these standards, companies are expected to assess potential liabilities based on loss contingencies and provisions. FASB ASC Subtopic 450-20 covers how U.S.-based firms handle these risks, while IAS 37 applies to entities using IFRS (International Financial Reporting Standards).
“Entities should implement this change retroactively for annual periods starting after December 15, 2024,” the SEC said in its bulletin. Companies can also adopt the rescission earlier for interim or annual filings submitted after the announcement of SAB 122.
How the SEC justifies the decisions
According to the SEC’s official filing, Staff Accounting Bulletins are not formal rules or legally binding interpretations. Instead, they provide guidance that reflects practices followed by the Division of Corporation Finance and the Office of the Chief Accountant.
Vanessa A. Countryman, Secretary of the SEC, confirmed that SAB 122 has officially replaced SAB 121 in the agency’s regulatory framework. The change has also been codified in Title 17 of the Code of Federal Regulations.
While the text of SAB 122 will not appear directly in the Code of Federal Regulations, the SEC has made updates to its table of Staff Accounting Bulletins to reflect the change.
The rescission of SAB 121 does not mean crypto companies can completely avoid disclosing risks tied to safeguarding users’ assets though. In its announcement, the SEC reminded companies of their existing obligations under broader regulatory requirements.
These include Items 101, 105, and 303 of Regulation S-K, which mandate disclosures on business operations, risk factors, and management’s discussion and analysis, respectively. Companies must also follow accounting rules under FASB ASC Topic 275, which addresses risks and uncertainties in financial reporting.
The SEC specifically mentioned that companies must disclose any material risks or uncertainties related to safeguarding crypto-assets. The agency also expects companies to provide enough information so investors can understand the financial and operational implications of their obligations.
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