US SEC Ends Controversial Crypto Rule Amid Leadership Shift

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SEC withdraws SAB 121, signaling a shift toward clearer crypto regulation, fostering innovation and industry support - IcoHolder.

In a significant policy reversal, the U.S. Securities and Exchange Commission (SEC) has rescinded its contentious Staff Accounting Bulletin No. 121 (SAB 121), a rule that drew widespread criticism for its strict accounting requirements on cryptocurrency custody. The decision comes just days after the departure of Gary Gensler as SEC Chair, marking a new chapter in the agency’s approach to crypto regulation.

SAB 121’s Repeal and Its Implications

The SEC announced on Thursday that SAB 121, introduced in 2022, had been officially withdrawn with the issuance of Staff Accounting Bulletin No. 122. The now-defunct guidance had mandated companies holding cryptocurrencies for clients to classify these assets as liabilities on their balance sheets, a policy that critics argued increased compliance costs and discouraged banks from offering crypto custody services.

Instead of adhering to SAB 121, entities are now directed to follow the established standards of the Financial Accounting Standards Board (FASB) or International Accounting Standards (IAS). SEC Commissioner Hester Peirce, now leading the agency’s new crypto unit, lauded the move. “Bye, bye SAB 121! It’s not been fun,” Peirce quipped on social media, highlighting the policy’s rigidity and its impact on innovation.

Controversy Surrounding SAB 121

Since its introduction, SAB 121 faced significant backlash from the crypto industry, lawmakers, and financial institutions. Critics condemned the rule for bypassing public consultation and targeting the digital asset sector unfairly. Banks argued that the policy hindered their ability to provide secure custodial services for cryptocurrencies.

Former SEC Chair Gary Gensler, a strong advocate for the rule, justified SAB 121 as a measure to protect investors in bankruptcy scenarios. Gensler pointed to court rulings that suggested customer crypto holdings could be claimed by creditors during bankruptcies, emphasizing the need for stricter safeguards. However, the rule’s opponents, including bipartisan members of Congress, argued that it stifled innovation and disproportionately burdened the emerging crypto sector.

A New Direction for Crypto Regulation

The withdrawal of SAB 121 coincides with significant leadership changes at the SEC. Mark Uyeda, the Republican Commissioner now serving as acting chair, has signaled a shift in the agency’s regulatory strategy. On Tuesday, Uyeda authorized the creation of a crypto task force led by Commissioner Peirce, tasked with establishing clearer and more consistent guidelines for the digital asset industry.

The SEC acknowledged past criticism of its enforcement-focused approach to crypto regulation, stating, “Clarity and practical solutions for those seeking compliance have been elusive.” The agency’s new direction aims to foster a predictable regulatory environment to support innovation while ensuring investor protection.

Broad Support for the Decision

The decision to repeal SAB 121 has been met with widespread approval from the crypto industry, banks, and lawmakers. Paige Pidano Paridon of the Bank Policy Institute hailed the move as a step toward empowering banks to serve as secure custodians of digital assets. Pro-crypto Senator Cynthia Lummis of Wyoming, the new chair of the Senate’s digital assets subcommittee, called the rule “disastrous” and praised its removal.

Representative Mike Flood, who spearheaded efforts to repeal SAB 121 in 2024, characterized the withdrawal as a bipartisan victory and a positive signal for U.S. crypto policy. The shift aligns with the agenda of President Donald Trump’s administration, which has pledged to make the U.S. a global leader in cryptocurrency innovation.

Conclusion

The repeal of SAB 121 reflects a broader transformation in the U.S. government’s stance on digital assets. With new leadership at the SEC and growing bipartisan support for crypto-friendly policies, the regulatory landscape appears poised to support innovation while addressing long-standing concerns about clarity and fairness.