The US Securities and Exchange Commission (SEC) has reportedly accepted a proposal with exceptions for certain institutions affected by the controversial Staff Accounting Bulletin No. 121 (SAB 121), according to Bloomberg Tax.
The SEC has allowed some banks and brokerages to bypass balance sheet reporting through new business practices that provide exceptions to the crypto accounting compliance guidance.
Under this arrangement, the financial institutions will not report customers’ crypto holdings as a liability on their balance sheets per SAB 121 stipulations. However, they must protect their customers’ assets in cases of bankruptcy or failure.
Additionally, the institutions would be required to implement internal safeguards to address legal risks related to the emerging industry.
Market observers noted that this move will expand US crypto holders’ custody options and attract more traditional financial institutions into the crypto industry.
SAB 121
This development comes more than two years after the SEC introduced the controversial SAB 121 guidance, which was intended to bring greater transparency and improved risk management to the rapidly evolving crypto industry.
The regulation enforces the recognition of custodial obligations as liabilities on balance sheets and demands detailed disclosures about the nature and risks associated with them.
However, the implementation of SAB 121 has raised significant concerns. Many industry stakeholders see the regulation as an overreach by the SEC. They argue that it imposes undue burdens on companies and could stifle innovation.
Critics also note that the regulation does not adequately distinguish between crypto on public ledgers and traditional assets on permissioned ledgers, complicating compliance efforts.
As a result, US lawmakers recently tried to overturn the advisory. However, their efforts were thwarted when President Joe Biden vetoed the resolution. A subsequent attempt to counter the President’s veto also failed, as lawmakers could not meet the required threshold.