SEC Signals Shift in Crypto Regulation with SAB 122, Reversing Key Accounting Requirements

According to an article by Akin Gump Strauss Hauer & Feld LLP, the US Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 122 just days after Mark Uyeda became acting chairman of the SEC. This bulletin effectively withdrew SAB 121 and signaled a significant shift in crypto regulation.

SAB 121, issued in March 2022, imposed strict accounting requirements on crypto-asset platforms. These included mandatory liability recognition for safeguarding user assets and specific technological, legal, and regulatory risk disclosures. The digital assets industry widely criticized these requirements for creating barriers to SEC registration and restricting banks from developing digital asset products.

The new SAB 122 removes the automatic requirement that crypto-asset custodians recognize liabilities. Instead, reporting entities must evaluate whether liabilities should be recognized, applying pre-existing guidance from the Financial Accounting Standards Board (FASB) and International Accounting Standards (IAS). However, general disclosure obligations remain, ensuring investors are informed of safeguarding risks.

While SAB 122 represents a significant step toward easing crypto regulation, it is not a comprehensive overhaul. Further actions from the SEC, the Commodity Futures Trading Commission (CFTC), and other regulators will be needed to reshape the financial regulatory framework for digital assets. 

This development highlights the potential for accelerated regulatory changes under the current administration, signaling a notable departure from the previous approach to crypto-asset oversight.