Crypto Custody Shakeup: SAB 122 Rescinds Controversial Regulation

Effective January 30th, a highly controversial (well, pretty much hated) regulation has been rescinded with the publication of Staff Accounting Bulletin No. 122. Originally, SAB 121 - issued back in March 2022 - provided guidance for custodians on accounting for crypto-assets held in safe-keeping for their clients. This guidance was widely criticized from the start, with some arguing it was part of a politically charged attack on Bitcoin and crypto, linked to the rhetoric of Elizabeth Warren and enforced by Gary Gensler’s SEC.

What SAB 121 Required

Under SAB 121, custodians were expected to put crypto-assets on their balance sheets. The idea was that, by doing so, the risks associated with holding these digital assets—technological, legal, and regulatory - would be more transparent. However, the regulation carried significant implications that effectively stopped custodians from providing digital asset custody:

  • Balance Sheet Impact:
    It forced custodians to account for crypto-assets as liabilities (with a corresponding asset). This meant that in the event of a bankruptcy, the crypto-assets could be frozen, potentially delaying consumer access until after bankruptcy proceedings were resolved.

  • Capital Allocation:
    The requirement also imposed strict capital rules - a dollar-for-dollar reserve—leaving no discretion to adjust based on the asset’s risk profile. For institutional investors who must use qualified custodians, this added layer of capital requirements was a critical factor.

Why Rescinding SAB 121 Matters

With SAB 121 now rescinded by SAB 122, global custodians such as BNY and SSB can more easily provide digital asset custody services, and institutional investors may have more options than Coinbase or Fidelity.

While self-custody cold storage remains the safest option for individual crypto holders, institutional investors often have no choice but to rely on qualified custodians. The rollback of SAB 121 may encourage these investors to reconsider their custodial relationships and for custodians to offer the services.

And, as a post-note to this story, I see that Gary Gensler is now a professor at MIT and that the team at Gemini annouced on X that they would not hire any students from MIT as long as he is still there. The hate runs deep.