SEC Unyielding on Crypto Custody Rule Sab 121: Paving Way for Operation Chokepoint 2.0?
The SEC's stance on SAB 121 remains unchanged. (Photo by Samuel Corum)
Key Takeaways[/focus-text-wrap
- SEC remains unfazed by its SAB 121 stance despite requests for consideration from stakeholders.
- SEC considered numerous appeals industry experts but concluded that the SAB 121 guidance remains intact.
- SAB 121 has become a key political agenda and point of discussion during ongoing Presidential election campaigns.
The Securities and Exchange Commission (SEC) is standing firm on its Staff Accounting Bulletin (SAB) 121 rule despite growing opposition from industry experts and lawmakers.
SAB 121 , introduced by the SEC in March 2022 without reportedly consulting the banking sector, has been the subject of intense debate due to its restrictive nature. Under this rule, traditional banking entities, not just conventional banks, are prohibited from offering digital asset custody services.
The SEC’s latest statement has intensified concerns that the agency is paving the way for a broader crackdown on the crypto industry, echoing the fears of a modern-day Operation Chokepoint.
SEC Firm on SAB 121
SEC Chief Accountant Paul Munter, in a public statement on Sept. 9, said that the views of the committee regarding SAB 121 remain unchanged.
Munter noted that any entity looking to offer crypto-asset management services must follow the “fact pattern described in SAB 121 and should present a liability on its balance sheet to reflect its obligation to safeguard the crypto-assets held for others, along with a corresponding asset that is separate and distinct from the crypto-assets held for others.”
SAB 121’s guidelines for traditional financial institutions dictate that crypto assets held for customers be treated as liabilities on their balance sheets and that they disclose the nature and amount of crypto assets in their financial statements.
While the SEC claims this approach is designed to increase transparency, critics argue that it creates unnecessary barriers and could stifle the industry’s growth. Many see SAB 121 as a conservative approach and an overreach by the SEC.
Operation Chokepoint 2.0 in the Making?
The crypto industry has raised concerns that SAB 121’s requirements could lead to a broader crackdown on the industry, dubbed “Operation Chokepoint 2.0.”
This movement, popularized by crypto social media platforms, suggests that the SEC, under the leadership of Gary Gensler, is actively working to restrict access to traditional financial services for crypto companies.
A historical precedent for this concern is the US Department of Justice’s (DOJ) original Operation Chokepoint, launched in 2013. The goal of the operation was to investigate and curtail banks’ dealings with high-risk businesses, including payday lenders and gun dealers.
Notably, in 2024, the SEC fined crypto companies $4.684 billion, a sum that dwarfs the total penalties levied over the past 12 years.
The SAB 121 bill has also become a rallying cry for lawmakers on both sides of the aisle, with pro-crypto lawmakers opposing the rule and anti-crypto lawmakers supporting it.
As the debate continues, the crypto industry remains vigilant, closely monitoring the SEC’s stance on SAB 121 and its potential implications for the future of digital asset regulation.
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