SEC repeals SAB 121, allowing banks to store digital assets securely

The United States Securities and Exchange Commission (SEC) has made a significant move in the world of finance by rescinding SAB 121, a guidance that had been a barrier for banks in providing custody for cryptocurrency and digital securities.

The decision to rescind SAB 121 was not taken lightly. The SEC's action follows votes from both the U.S. House and Senate to repeal the guidance. However, President Biden used a Presidential veto to prevent the rescission, indicating that the issue was not closed.

SAB 121, introduced in 2019, required companies to treat digital assets under custody as both an asset and a liability on their balance sheet. This prudential regulation, aimed at maintaining financial stability, meant that banks were blocked from providing custody for cryptocurrency or digital securities due to the impact on their balance sheets.

The Government Accountability Office (GAO) determined that SAB 121 warranted a Congressional review, highlighting the need for a reevaluation of the guidance. In the last few months, the SEC has allowed some exceptions to the SAB 121 rules on a case-by-case basis, suggesting a shift in the SEC's stance.

The rescission of SAB 121 is a significant step forward, as it allows digital assets under custody to belong to clients and not be included on the balance sheet. This move is expected to encourage more banks to enter the digital asset custody market, potentially increasing the adoption of cryptocurrencies and digital securities.

While the person who reintroduced SAB 121 to Congress after President Biden's veto and ultimately had it repealed was not directly named in the search results, the congressional action continued. The repeal of SAB 121 marks a milestone in the regulation of digital assets, signaling a more progressive approach to this rapidly evolving sector.