Have you heard the news? SAB 121 was recently repealed. In this post, we're going to walk through what exactly happened, what SAB 121 was, and how this appeal will affect (and benefit) your work with crypto and digital assets.
What happened?
SAB 122 repealed SAB 121.
What is SAB 121?
Staff Accounting Bulletin 121, better known as SAB 121, provided guidance that institutions custodying digital assets on behalf of customers must classify that crypto as a liability on their balance sheet. This guidance, which is completely different from all other custodied assets, posed significant downsides for institutions holding it. This treatment of the custodied assets would artificially inflate balance sheets with large liabilities that would lead a company to appear more leveraged than it actually was. This treatment especially impacted banks with reserve requirements, stress testing requirements, and loan services based on balance sheet liabilities. Classifying crypto as a liability on the institutional balance sheet made operational costs untenable and discouraged participants. This made custodying digital assets very unattractive for entities such as banks, and prevented them from moving forward in the digital asset space.
What does the repeal do?
With the repeal of SAB 121, digital assets now receive the same treatment as traditional financial instruments: as another off balance sheet asset held securely for their clients like gold, stocks, or cash.
Why is it important?
The repeal of SAB 121 opens doors for banks to start custodying digital assets and expand their crypto custody services more freely, competing directly with existing crypto platforms. Also it enables the custodying of crypto by the most trusted institutions in America that currently custody the vast majority of other assets, thus putting digital assets on an even playing field. These services can include wealth management, stablecoins, collateralized loans, and many other crypto related initiatives.
This is a monumental step forward for the digital asset industry and will lead to increased adoption and innovation.
How does Ledgible help?
Ledgible will help your institution understand all these new regulatory changes surrounding digital assets including: SAB 121 repeal, the newly proposed DeFi regulations, the finalized 1099-DA, cost-basis reporting for brokers, and overall reconciliation. Ledgible currently works with top 5 banks and institutions like Franklin Templeton and Tetra Trust on various digital asset services from back office reconciliation to customer facing data aggregation to 1099 filing support
As the first ones to testify in front of the IRS, Ledgible has been at the forefront of Digital Asset Regulations from Day 1.
If you’d like to discuss how the repeal of SAB 121 impacts you, feel free to reach out to sales@ledgible.io