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In addition to President Trump’s executive order, and the SEC’s creation of a crypto task force to study how to regulate digital assets, the crypto industry received more good news last week with the SEC’s Accounting Staff issued SAB No. 122, which rescinded its controversial SAB No. 121. That interpretation required crypto platforms to treat their obligations to safeguard the crypto-assets held for its platform users as liabilities. Critics contended that it deterred financial institutions from serving as custodians for digital assets and deprived owners of more secure alternatives for holding those asset. This excerpt lays out the substance of SAB No. 122:

This SAB rescinds the interpretive guidance included in Topic 5.FF in the Staff Accounting Bulletin Series entitled Accounting for Obligations to Safeguard Crypto-Assets an Entity Holds for its Platform Users. Upon application of the rescission of Topic 5.FF, an entity that has an obligation to safeguard crypto-assets for others should determine whether to recognize a liability related to the risk of loss under such an obligation, and if so, the measurement of such a liability, by applying the recognition and measurement requirements for liabilities arising from contingencies in Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Subtopic 450-20, Loss Contingencies, or International Accounting Standard (“IAS”) 37, Provisions, Contingent Liabilities and Contingent Assets under U.S. generally accepted accounting principles and IFRS Accounting Standards, respectively.

The new interpretation goes on to say that entities should effect the rescission of SAB No. 121 on a fully retrospective basis in annual periods beginning after December 15, 2024, and that they may elect to effect the rescission in any earlier interim or annual financial statement period included in SEC filings after the effective date of SAB No. 121.

– John Jenkins