- The SEC has withdrawn SAB 121, which required companies to include customer crypto assets on their balance sheets.
- New guidance SAB 122 directs firms to follow FASB or International Accounting Standards.
- Former SEC Chair Gary Gensler supported the original guidance citing bankruptcy protection concerns.
- Both House and Senate passed resolutions against SAB 121, but President Biden vetoed them.
- Commissioner Hester Peirce, who heads the new crypto task force, announced the withdrawal.
SEC Reverses Crypto Accounting Requirements
The U.S. Securities and Exchange Commission (SEC) reversed course on Thursday by withdrawing SAB 121, a controversial accounting guidance that required public companies to report customers’ cryptocurrency holdings on their balance sheets. The new SAB 122 directive instructs firms to follow established financial accounting standards instead.
Background and Industry Impact
The original guidance, implemented under former SEC Chair Gary Gensler, aimed to protect investors during bankruptcy scenarios. As Gensler explained to Reuters in 2023: "What we have found actually in bankruptcy court, time and again, many times now, that indeed, bankruptcy courts have said that crypto assets are not bankruptcy remote."
The cryptocurrency industry strongly opposed SAB 121, arguing it created unnecessary regulatory burden and confusion. The resistance led to both chambers of Congress passing resolutions to overturn the guidance, though these efforts were ultimately blocked by President Biden’s veto.
New Direction Under Peirce
Hester Peirce, recently appointed to lead the SEC’s cryptocurrency task force, has consistently opposed SAB 121 since its 2022 implementation. Her criticism centered on two main points: the SEC’s lack of clear guidance on how securities laws apply to cryptocurrencies, and questions about whether an accounting bulletin was the appropriate vehicle for such regulatory requirements.
The new guidance maintains investor protection through existing disclosure requirements, with the SEC emphasizing that companies must still provide clear information about their obligations regarding customer crypto-asset safeguarding. This shift aligns with standard Financial Accounting Standards Board (FASB) rules and International Accounting Standards, creating a more standardized approach to crypto asset reporting.
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