SEC Rescinds SAB 121 on Crypto Safeguarding Obligation

Sean C. Prince, Nicholas G. Topoll
| 1/24/2025
SEC Rescinds SAB 121 on Crypto Safeguarding Obligation

The SEC’s SAB 122 rescinds a contentious staff accounting bulletin that required crypto custodians to record a safeguarding obligation.

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  • On Jan. 23, 2025, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin (SAB) No. 122, which rescinds the staff’s previous SAB No. 121 that had required an entity to record a liability when it had an obligation to safeguard third-party crypto assets.
  • The recission of SAB No. 121 takes effect in annual reporting periods beginning after Dec. 15, 2024, but an entity may also elect to rescind SAB No. 121 in an earlier interim or annual financial statement period that is included in filings with the SEC after the effective date of SAB No. 122 (Jan. 30, 2025).
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  • Entities must adopt SAB No. 122 on a fully retrospective basis and provide clear disclosure of the effects of the change on its financial statements in accordance with paragraphs 250-10-50-1 through 50-3 of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 250, “Accounting Changes and Error Corrections.”
  • Under SAB No. 122, an entity that has an obligation to safeguard crypto assets on behalf of others still must assess whether it should recognize a liability associated with the risk of loss under such an obligation. If a liability is recognized, the measurement of this liability must be determined by applying the recognition and measurement requirements for liabilities arising from contingencies as outlined in FASB ASC Subtopic 450-20, “Loss Contingencies.”
  • SAB No. 122 instructs entities that they should “continue to consider existing requirements to provide disclosures that allow investors to understand an entity’s obligation to safeguard crypto-assets held for others. These requirements include but are not limited to, Items 101, 105, and 303 of Regulation S-K; FASB ASC Subtopic 450-20; and FASB ASC Topic 275, ‘Risks and Uncertainties.’”

FASB materials reprinted with permission. Copyright 2025 by Financial Accounting Foundation, Norwalk, Connecticut. Copyright 1974-1980 by American Institute of Certified Public Accountants.

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Sean Prince
Sean C. Prince
Partner, National Office
Nic Topoll
Nicholas G. Topoll
Accounting Advisory