SEC Axes SAB121, Admits It Stifled Collaboration With Banks
Key Takeaways
- The SEC, under the Trump administration, has repealed the controversial SAB121.
- SAB121 imposed stringent requirements on financial firms offering crypto custody services.
- Lawmakers and crypto proponents welcomed the move as a win for the industry.
The Securities and Exchange Commission has withdrawn Staff Accounting Bulletin No. 121 (SAB121) , one of the most contentious policies targeting the crypto industry under the Biden administration.
The decision, made during the first week of Donald Trump’s presidency, signals a significant shift in the government’s stance on crypto regulation.
Acting SEC Chair Mark Uyeda, appointed by Trump, spearheaded the repeal, marking a symbolic end to what critics dubbed the “madness” of Gary Gensler’s tenure as SEC chief.
SAB121: A Brief History
First introduced in March 2022, SAB121 mandated that financial institutions holding cryptocurrency on behalf of clients record those assets as liabilities on their balance sheets.
The rule aimed to address perceived risks associated with crypto custody but faced immediate backlash from the financial and crypto industries.
Crypto advocates argued that the rule was impractical, creating unnecessary burdens for financial firms and discouraging them from offering custody services to crypto companies.
Despite this resistance, the Biden administration pushed the measure through in May 2022.
House Financial Services Committee Chair French Hill criticized SAB121 from the outset, calling it a “misguided” policy. On the repeal, Hill stated :
“Finally, the Biden-Harris misguided SAB121 rule has been rescinded. Holding reserves against the assets held in custody is NOT standard financial services practice, and I’m pleased this rule was nullified.”
Gensler’s Approach to Crypto Regulation
SAB121 became a symbol of what critics described as Gary Gensler’s inconsistent and heavy-handed approach to crypto regulation. During his tenure, the SEC chief claimed that existing financial laws were sufficient to govern the crypto sector.
However, the issuance of SAB121 contradicted that stance, highlighting a willingness to impose new restrictions on the industry without offering clarity or tailored guidelines.
Coinbase, the largest U.S.-based crypto exchange, filed a lawsuit against the SEC in 2023, demanding regulatory clarity for the sector.
The exchange argued that the lack of comprehensive rules left crypto firms operating in a regulatory gray area. Despite these calls, the SEC remained unyielding , insisting that crypto companies comply with decades-old financial laws.
SAB121, however, demonstrated that the SEC was willing to create new rules when it suited their agenda, drawing accusations of hypocrisy and inconsistency.
Operation Chokepoint 2.0 Allegations
The repeal of SAB121 also reignited discussions about the Biden administration’s alleged anti-crypto campaign, often referred to as Operation Chokepoint 2.0.
This purported initiative involved government agencies warning and restricting traditional financial firms from engaging with crypto companies, effectively cutting off the industry from essential banking services.
Critics pointed to SAB121 as a key component of this strategy, aimed at stifling the growth of the crypto sector under the guise of investor protection.
With the withdrawal of SAB121, the Trump administration has sent a clear message that it intends to take a more constructive approach to crypto regulation, prioritizing innovation and collaboration over restriction.
