The SEC Makes Exceptions for Institutions Regarding Crypto Accounting Compliance

The US Securities and Exchange Commission (SEC) recently made headlines by accepting a proposal that includes exceptions for certain institutions affected by the controversial Staff Accounting Bulletin No. 121 (SAB 121). This decision is aimed at easing the burden on banks and brokerages when it comes to balance sheet reporting related to crypto assets.

Under the new arrangement, financial institutions will not be required to report customers’ crypto holdings as liabilities on their balance sheets, as mandated by SAB 121. This exemption, however, comes with certain conditions. Institutions must ensure the protection of their customers’ assets in case of bankruptcy or failure. Moreover, internal safeguards need to be implemented to address legal risks associated with the crypto industry.

Market observers believe that this move will broaden custody options for US crypto holders and potentially attract more traditional financial institutions into the crypto space. By providing exemptions to some institutions, the SEC is signaling a willingness to adapt to the evolving landscape of digital assets.

The introduction of SAB 121 over two years ago was met with mixed reactions from industry stakeholders. While the regulation was intended to enhance transparency and risk management in the crypto industry, many view it as overly burdensome. Critics argue that SAB 121 fails to differentiate adequately between crypto assets on public ledgers and traditional assets on permissioned ledgers, making compliance efforts complex.

Efforts to overturn the SEC’s guidance have been met with opposition. US lawmakers attempted to annul the advisory, but President Joe Biden vetoed their resolution. Subsequent efforts to challenge the veto failed to garner enough support, leaving the regulation in place.

The SEC’s decision to accommodate certain institutions by offering exceptions to SAB 121 reflects a recognition of the challenges posed by crypto accounting compliance. While the move is expected to benefit the industry by encouraging more participation from traditional financial institutions, ongoing debates about the regulation’s impact and implementation are likely to continue. It remains to be seen how these developments will shape the future of crypto regulation in the US.