SEC softens stance on SAB-121: Galaxy Research

In a speech on September 9, Paul Munter, Chief Accountant of the United States Securities and Exchange Commission, appeared to backtrack on the SEC's Staff Accounting Bulletin-121 (SAB-121) measures that restrict banks from providing digital asset protection services to customers.

According to an analysis by Alex Thorne, Galaxy's head of research, Munter introduced exemption requirements that would allow banking firms and brokers to bypass the safeguards set forth in SAB-121.

Banks can avoid SAB-121 reporting requirements if they receive written approval from state regulators, hold customer assets at “loss distance,” set clear requirements in contracts, and conduct formal risk assessments.

Introducing brokers can exempt themselves from SAB-121 requirements by meeting three requirements.

The brokers may not hold the client's private keys, may not be third parties in the transaction, and may not act as agents of the promoting broker. Finally, the advertiser must obtain a legal opinion confirming that the broker is an independent broker of digital assets.

Thorne explained that these exemptions “cut a big chunk out” of the entities that were initially subject to the reporting requirements of SAB-121. However, large national banks regulated by the Office of the Comptroller of the Currency (OCC) cannot obtain an exemption from SAB-121 and must still appeal directly to the SEC. They want relief.

Given these limitations for large, nationally organized banks, Galaxy's head of research ultimately concluded that easing the provisions of SAB-121 is a positive development for the crypto industry and the adoption of digital assets.

“The SEC may never have intended to apply SAB-121 to banks,” Thorne explained in a statement to Cointelegraph. He also explained.

“As banks became more interested, the full scope of the accounting standard became clear, putting significant pressure on the SEC. But because they had been digging for a cure for years, it became politically difficult for the SEC to adjust its position.”

Thorn suggested that these measures may have been introduced “punitively” to target the cryptocurrency industry and digital asset markets.

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Accounting statement of employees-121

The SEC first introduced SAB-121 in 2022 and began facing intense pressure from US lawmakers to repeal the rules in February 2024.

In May, the United States House of Representatives voted 46 votes to repeal the SEC's SAB-121 reporting rules.

However, President Joe Biden rejected the repeal. Repeal of SAB-121 would have made the SEC less effective as a financial regulator, he said.

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