SAB 121 Repealed: What This Means for Digital Asset Custody and Accounting

In a landmark decision for the digital asset industry, the U.S. Securities and Exchange Commission (SEC) has officially repealed Staff Accounting Bulletin No. 121 (SAB 121). The controversial guidance, which required financial institutions to report customer-held digital assets as both “safe guarding assets” and “safe guarding liabilities” on their balance sheets, has been widely criticized for stifling innovation and increasing operational complexity.

The repeal represents a significant shift in the regulatory landscape, offering financial institutions, exchanges, and custodians much-needed relief and new opportunities to expand their digital asset services without the additional reporting burdens imposed by SAB 121.

A Look Back: What Was SAB 121?

SAB 121, introduced by the SEC in 2022, mandated that any institution holding digital assets on behalf of customers must:

1. Recognize customer digital assets as both assets and liabilities – Customer-held digital assets had to be reflected on the institution’s balance sheet, impacting capital reserve requirements.
2. Incur higher operational costs – Institutions were required to enhance compliance and risk management frameworks (e.g. additional audit scope), driving up costs and resource allocations.
3. Undergo extensive reporting – Strict reporting obligations placed additional strain on accounting and finance teams, complicating financial statement preparation.

The guidance was widely seen as overly burdensome, with critics arguing that it disproportionately impacted crypto custodians, exchanges, and financial institutions by forcing them to hold capital against customer assets without credit for those holdings.

The Repeal: What Has Changed?

On 1/23/25 the SEC issued SAB 122, which completely rescinds SAB 121. With the repeal of SAB 121, financial institutions can now return to traditional accounting treatment for customer-held digital assets. This change unlocks several key benefits, including:

• Improved Capital Efficiency: Institutions are no longer required to hold additional capital reserves against customer crypto assets, freeing up resources for growth and innovation.
• Enhanced Custody Opportunities: Banks and financial service providers can expand their digital asset offerings without the fear of disproportionate regulatory burdens.
• Streamlined Financial Reporting: The repeal reduces the complexity of balance sheet reporting, better aligning digital asset accounting with traditional financial instruments.

While the repeal removes immediate compliance challenges, institutions must continue to prioritize robust accounting practices to stay compliant with other applicable regulatory frameworks.

How Taxbit Supports Institutions in the Post-SAB 121 Era

Even with the repeal of SAB 121, institutions still face complex compliance and operational challenges when managing digital assets. Taxbit’s enterprise-grade accounting platform helps businesses maintain transparency, accuracy, and efficiency in their financial reporting. Our solutions provide:

1. Accurate Financial Reporting 

Taxbit automates the tracking of digital assets across custodians and wallets, ensuring compliance with existing accounting standards such as FASB fair value reporting and IFRS requirements, even as regulatory guidance evolves.

2. Efficient Data Ingestion and Aggregation

Our platform seamlessly integrates with multiple data sources—blockchains, exchanges, and ERP systems—providing real-time visibility into transactions, valuations, and liabilities, helping financial teams maintain accurate reporting.

3. Audit-Ready Compliance Tools

Taxbit simplifies the audit process by offering automated reconciliation, cost-basis tracking, and transaction verification to ensure businesses remain audit-ready in an evolving regulatory environment.

4. Scalable Solutions for Future-Proofing Operations

Whether it’s supporting stablecoin reporting, multi-entity consolidation, or real-time transaction monitoring, Taxbit empowers businesses to navigate the complexities of digital asset accounting confidently.

What’s Next for Digital Asset Regulation?

Although SAB 121 has been rescinded, regulatory scrutiny of digital assets is far from over. Institutions should stay vigilant as new frameworks for reporting and custody continue to emerge. The industry is going through a transition to fair value accounting, with more detailed disclosure requirements, and tighter controls to ensure investor protection and financial stability.

Financial institutions looking to capitalize on the growing adoption of digital assets should proactively adopt scalable accounting solutions to stay ahead of future regulatory changes.

The repeal of SAB 121 marks a pivotal moment for the digital asset industry, removing a significant barrier to mainstream adoption. With this regulatory hurdle out of the way, institutions can focus on scaling their digital asset services with greater confidence and efficiency.

At Taxbit, we’re here to help you navigate the evolving landscape with cutting-edge accounting solutions designed for the complexities of digital asset management.