SAB 121 and SAB 122: The Complete Guide to SEC Crypto Custody Accounting
July 01, 2026
Key Takeaways
SAB 121, issued in March 2022, required custodians to record crypto assets as balance sheet liabilities, creating major barriers for banks
SAB 122, effective January 2025, rescinded SAB 121 and aligned crypto custody accounting with standard GAAP practices
Banks and traditional financial institutions can now offer crypto custody without automatic balance sheet penalties
Institutions must still assess loss contingencies under ASC 450-20 and maintain robust custody infrastructure
The SEC’s Staff Accounting Bulletin 121 (SAB 121) was one of the most controversial crypto regulations in recent history. Issued in March 2022, it effectively blocked banks from offering crypto custody services by requiring them to record customer crypto assets as liabilities on their balance sheets.
In January 2025, the SEC rescinded SAB 121 with SAB 122, marking a pivotal shift in U.S. crypto regulation. This guide explains both bulletins, their impact on institutional crypto custody, and what financial institutions need to know in 2026 and beyond.
What Was SAB 121?
Staff Accounting Bulletin No. 121 was SEC staff guidance issued on March 31, 2022. It addressed how companies should account for their obligations to safeguard crypto assets held for others, a practice known as blockchain custody.
The Core Requirement
SAB 121 required any entity that safeguards crypto assets on behalf of customers to:
Recognize a liability equal to the fair value of crypto assets held
Record a corresponding asset on the balance sheet
Provide enhanced disclosures about crypto custody risks
Under these guidelines, a bank safeguarding $1 billion in Bitcoin for its customers had to record an equivalent $1 billion liability on its balance sheet. This created a bizarre accounting quirk: the bank had to report a massive liability for assets it didn’t actually owe, as they remained the property of the clients.
Why SAB 121 Was Problematic for Banks
For traditional banks, SAB 121 created insurmountable obstacles:
Capital Requirements: Recording crypto as liabilities increased banks’ liability-to-capital ratios, potentially triggering higher capital reserve requirements under Basel III and similar frameworks.
Balance Sheet Impact: The one-to-one liability treatment inflated balance sheets without corresponding economic risk, distorting financial metrics.
Regulatory Scrutiny: Banks already subject to OCC, FDIC, and Federal Reserve oversight faced additional compliance burdens that made crypto custody uneconomical.
Competitive Disadvantage: While banks struggled with SAB 121, crypto-native custodians operated under different accounting frameworks, creating an uneven playing field.
The Congressional Response
SAB 121 faced bipartisan opposition in Congress. In May 2024, both the House and Senate passed H.J.Res. 109, a resolution to overturn SAB 121 under the Congressional Review Act. However, President Biden vetoed the resolution, keeping SAB 121 in effect.
The Government Accountability Office (GAO) also ruled that SAB 121 should have been submitted to Congress for review before taking effect, adding to the controversy surrounding the bulletin.
What Is SAB 122?
On January 23, 2025, the SEC issued Staff Accounting Bulletin No. 122, which formally rescinded SAB 121. This was part of a broader shift in crypto policy under the new administration.
Key Changes Under SAB 122
SAB 122 eliminated the automatic liability recognition requirement and returned to standard accounting principles:
Risk-Based Liability Assessment: Instead of recording the full value of custodied crypto as a liability, institutions now assess potential loss contingencies under existing GAAP standards (ASC 450-20) or IFRS (IAS 37).
Proportional Recognition: If an institution determines there’s a 5% probability of loss on $100 million in custodied assets, they might recognize a $5 million contingent liability and not the full $100 million.
Technology-Neutral Treatment: Crypto custody accounting now aligns with how other custodied assets (securities, commodities) are treated, removing the discriminatory framework.
Implementation Timeline
SAB 122 requires full retrospective application for annual periods beginning after December 15, 2024. Key dates:
Effective Date: January 30, 2025 (for SEC filings)
Retrospective Application: Annual periods after December 15, 2024
Early Adoption: Permitted in any interim or annual period after the effective date
Most SEC-reporting entities completed initial implementation by early 2026.
Impact on Banks and Financial Institutions
The rescission of SAB 121 has significant implications for institutional crypto custody.
Banks Can Now Offer Crypto Custody
With the balance sheet barrier removed, traditional banks can enter the institutional-grade crypto custody market without automatic capital penalties. This enables:
Expanded Service Offerings: Banks can add crypto custody to their existing asset management services
Institutional Client Retention: Banks can prevent customers from moving assets to crypto-native platforms
Revenue Diversification: Custody fees represent a new revenue stream for traditional financial institutions
Remaining Considerations
While SAB 122 removes accounting barriers, banks still face other requirements:
Banking Regulator Approval: OCC, FDIC, and Federal Reserve guidance on crypto activities remains relevant. Banks need regulatory approval before offering crypto custody.
Operational Infrastructure: Secure key management, transaction monitoring, and segregation of customer assets require specialized systems.
Insurance Coverage: Institutions must evaluate coverage for cyber risks, operational failures, and potential asset losses.
AML/KYC Compliance: Bank Secrecy Act requirements apply to crypto transactions and custody arrangements.
Current Accounting Requirements Under SAB 122
Under the post-SAB 121 framework, institutions must still meet specific accounting and disclosure requirements.
Loss Contingency Assessment
Under ASC 450-20 (or IAS 37 for IFRS reporters), institutions must evaluate:
Probability of Loss: Is a loss event probable, reasonably possible, or remote?
Estimability: Can the amount of potential loss be reasonably estimated?
Recognition: If probable and estimable, recognize a liability; if reasonably possible, disclose in notes
Required Disclosures
SAB 122 didn’t add new disclosure requirements, but existing regulations still apply:
Regulation S-K Item 101: Description of business, including crypto custody services
Regulation S-K Item 105: Risk factors related to safeguarding crypto assets
Regulation S-K Item 303: MD&A discussion of crypto custody’s impact on financial condition
ASC 275: Disclosure of significant estimates and uncertainties related to crypto valuations
Transition Disclosures
Entities adopting SAB 122 must clearly disclose:
The nature and reason for the change in accounting principle
The method of applying the change
The effect on financial statement line items
Cumulative effect adjustments, if any
What This Means for Institutional Crypto Adoption
The SAB 121 rescission is part of a broader regulatory reset for crypto in the United States.
Accelerated Bank Participation
Major financial institutions that previously avoided crypto due to SAB 121 can now compete with crypto-native custodians. This brings:
Increased Custody Options: More choices for institutional investors seeking regulated custodians
Enhanced Credibility: Bank involvement adds legitimacy to crypto markets
Potential Fee Compression: Competition may reduce custody costs over time
Integration with Traditional Finance
With banks entering crypto custody, expect greater integration between traditional and digital asset infrastructure:
Unified Custody: Stocks, bonds, and crypto under single custody relationships
Tokenization Acceleration: Banks can custody tokenized securities and real-world assets more easily
Institutional Products: More crypto ETFs, structured products, and derivatives
Ongoing Regulatory Developments
The GENIUS Act and related legislation continue to shape the crypto regulatory landscape. Key areas to watch:
Stablecoin Regulation: Final rules expected to clarify custody requirements for stablecoin reserves
Banking Guidance: OCC, FDIC, and Federal Reserve updates on crypto activities
State-Level Rules: Money transmitter license implications for various custody models
Best Practices for Crypto Custody Compliance
Whether you’re a bank entering crypto custody or an institution evaluating crypto custody firms, these practices ensure compliance under the current framework.
For Custodians
1. Risk Assessment Framework Develop robust methodologies for assessing loss contingencies related to:
Operational failures (key loss, system breaches)
Third-party risks (sub-custodians, technology providers)
Market risks (valuation methodologies, liquidity)
2. Segregation of Assets Maintain clear separation between:
Customer assets and proprietary holdings
Individual customer accounts
Hot, warm, and cold storage environments
3. Technology Infrastructure Implement enterprise-grade solutions including:
Multi-party computation (MPC) for key management
Hardware security modules (HSMs) for cryptographic operations
Real-time monitoring and alerting systems
4. Documentation and Audit Trails Maintain comprehensive records for:
All custody transactions and authorizations
Risk assessments and methodology updates
Incident responses and remediation
For Institutions Selecting Custodians
1. Due Diligence Checklist
Regulatory status and applicable licenses
Insurance coverage and limits
SOC 2 Type II certification
Technology stack and security practices
Financial stability and capitalization
2. Contractual Protections
Clear liability allocation
Service level agreements
Disaster recovery provisions
Exit procedures and asset portability
3. Ongoing Monitoring
Regular attestation reviews
Security audit results
Incident notifications
Financial condition updates
The Future of Crypto Custody Accounting
With SAB 121 behind us, the crypto custody infrastructure landscape is evolving rapidly.
Expected Developments
FASB Guidance: The Financial Accounting Standards Board may issue more comprehensive crypto accounting standards, building on its 2023 fair value guidance.
International Harmonization: As the U.S. aligns with IFRS treatment of custodied assets, expect greater consistency in global accounting practices.
Technology-Specific Standards: Future guidance may address unique aspects of DeFi custody, smart contract wallets, and cross-chain assets.
Building for the New Era
Institutions positioning for success in crypto custody should focus on:
Scalable Infrastructure: Systems that can handle growing volumes and new asset types
Regulatory Agility: Ability to adapt to evolving guidance without operational disruption
Client Experience: Seamless integration with existing financial services workflows
Conclusion
SAB 121 represented a significant barrier to institutional crypto adoption, but its rescission through SAB 122 has opened new opportunities for banks and financial institutions.
The key takeaway: crypto custody accounting now follows standard principles under GAAP and IFRS. Institutions must still assess loss contingencies and maintain appropriate disclosures, but the automatic balance sheet penalty is gone.
For institutions building or expanding crypto custody capabilities, the focus should now be on operational excellence: robust technology infrastructure, comprehensive risk management, and seamless client service. The accounting barriers have fallen, and execution is what matters now.
FAQ
What does SAB 121 require for crypto custody?
SAB 121 (now rescinded) required custodians to record the full fair value of customer crypto assets as a liability on their balance sheet, with a corresponding asset. This created significant capital and accounting challenges for banks.
Is SAB 121 still in effect?
No. SAB 121 was rescinded by SAB 122, effective January 30, 2025. Entities must now follow standard GAAP (ASC 450-20) for assessing loss contingencies related to crypto custody.
How does SAB 122 change crypto custody accounting?
SAB 122 eliminates the automatic liability recognition requirement. Instead, custodians assess potential losses under existing contingency accounting standards, recognizing liabilities only to the extent losses are probable and estimable.
Can banks now offer crypto custody?
Yes, the accounting barrier is removed. However, banks still need regulatory approval from banking supervisors (OCC, FDIC, Federal Reserve) and must meet operational, compliance, and technology requirements.
What disclosures are required under SAB 122?
SAB 122 doesn’t add new disclosure requirements. Existing Regulation S-K items (101, 105, 303) and ASC 275 (uncertainties) continue to apply. Entities must also disclose the effects of adopting SAB 122 as a change in accounting principle.
