SEC Rescinds SAB 121, but Bank Regulators Still Pose Crypto Custody Hurdles
The SEC's SAB 122 eliminated SAB 121's balance-sheet liability rule for bank crypto custody, yet OCC, Fed, and FDIC guidance and the informal 'pause letters' continue to constrain bank digital-asset activity.
On January 23, 2025, the SEC issued Staff Accounting Bulletin 122, formally rescinding SAB 121 and removing its reference from the SEC Staff Accounting Bulletin Series. SAB 121 had forced banks safeguarding customer crypto to record a corresponding liability and tie up regulatory capital, effectively deterring bank custody services. SAB 122 applies to annual periods beginning after December 15, 2024, and may be applied retroactively to prior periods reported after that date. Rescission eliminates the rigid one-to-one asset/liability treatment, though general GAAP principles may still require recognition of a contingent liability, likely on a less burdensome basis. The more durable obstacle, the alert argues, sits with the federal banking regulators: OCC, FRB, and FDIC have issued mixed guidance and the FDIC has used informal supervisory letters directing institutions to pause or not expand crypto activities. A pending FOIA suit by Coinbase seeks those pause letters. Sophisticated counsel should track OCC, Fed, and FDIC follow-on guidance and FOIA-driven disclosures, as well as any Congressional or Trump-administration action reforming the prudential framework, since those moves will determine whether banks can re-enter crypto custody at scale.