SEC Rescinds SAB 121, Paving the Way for Wall Street Banks to Embrace Crypto Custody
The U.S. Securities and Exchange Commission (SEC) has made a groundbreaking move by rescinding the Staff Accounting Bulletin (SAB) 121, removing a significant barrier that previously restricted Wall Street banks from holding cryptocurrencies. This decision marks a pivotal moment for the financial sector’s engagement with digital assets, signaling the start of a new chapter for crypto services within traditional banking.
SEC’s Decision: A Game-Changer for Wall Street
The rescinding of SAB 121 offers Wall Street banks the green light to expand their offerings in digital assets, opening the door for greater involvement in crypto custody and transaction services. Introduced in 2022, SAB 121 required financial institutions to classify digital assets as liabilities on their balance sheets when offering crypto-related services. This accounting rule came with hefty capital requirements and additional operational costs, creating a disincentive for banks to engage with cryptocurrencies.
As a result, many financial institutions hesitated to offer digital asset services such as custodial solutions and crypto transactions. By removing this regulation, the SEC has cleared a major hurdle for banks looking to provide these services to clients, making it financially viable for them to enter the rapidly expanding market.
The Influence of Leadership Changes and Industry Push
The SEC’s decision comes after persistent lobbying from the crypto industry and a concerted push from key figures in Congress. Although a bipartisan effort to reverse SAB 121 was vetoed by President Joe Biden last year, momentum in favor of reworking crypto regulations continued to build. The SEC, under new leadership, responded to this shift by revoking the rule.
Hester Peirce, a commissioner with a pro-crypto stance, has been a vocal critic of SAB 121. In a recent post on X, she expressed her approval of the move, highlighting the significance of this regulatory change for the future of digital assets. Peirce has also been appointed to lead a newly formed SEC crypto task force, which is expected to create a clear and coherent regulatory framework for the digital asset space.
The SEC’s decision also follows the resignation of former SEC Chair Gary Gensler on January 20, 2025. Gensler, known for his strict stance on crypto regulations, had defended SAB 121 as a necessary safeguard for investors. With his departure, the regulatory landscape is expected to evolve, especially as the Trump administration adjusts its approach to digital asset growth.
The Impact on Wall Street Banks
With the rescinding of SAB 121, major financial institutions such as Goldman Sachs, Morgan Stanley, and Bank of America are now better positioned to broaden their involvement in the crypto sector. These banks had previously expressed interest in incorporating crypto strategies, contingent on more favorable regulatory conditions. The SEC’s recent move aligns with their ambitions, signaling a more welcoming environment for expanding digital asset services.
The regulatory shift is expected to encourage further institutional adoption of digital assets, as financial institutions can now develop and offer crypto-related services with fewer regulatory burdens. The move is also likely to spur innovation and increase investment in the sector, fostering greater integration between digital assets and traditional finance.
Looking Ahead: A Clearer Path for Crypto Custody
The SEC’s decision to reverse SAB 121 has paved the way for a more inclusive approach to crypto custody on Wall Street. This change not only impacts the major financial players but also provides a clearer path for broader institutional adoption of digital assets. As banks take advantage of the reduced regulatory barriers, the digital asset market is poised for continued growth, with Wall Street playing a larger role in shaping the future of crypto.