Banks Have Green Light to Hold Crypto After SEC Axes Rule

Banks Have Green Light to Hold Crypto After SEC Axes Rule

SEC Removes Crypto Accounting Rule, Paving Way for Banks to Expand Custody Services

The U.S. Securities and Exchange Commission (SEC) has officially rescinded Staff Accounting Bulletin 121 (SAB 121)—a rule that previously required financial institutions to record crypto assets held for customers as liabilities on their balance sheets. The decision is expected to encourage more traditional banks to enter the crypto custody business, marking a significant shift in the regulatory landscape.

Major Banks Set to Expand Crypto Services

With the removal of SAB 121, industry experts predict that traditional financial giants will expand their crypto offerings, particularly in the realm of custody services for exchange-traded funds (ETFs).

“Several large custodians, such as U.S. Bank and BNY Mellon, already provide fund administration and cash custody for crypto ETFs,” said Steven McClurg, CEO of Canary Capital. “BNY Mellon also has the technical ability to custody Bitcoin and Ethereum.”

The regulatory change is expected to drive industry consolidation, with banks potentially acquiring crypto-native firms like Gemini or Anchorage to accelerate their entry into the market.

Gradual Adoption and Institutional Shift

Despite the rule change, McClurg emphasized that most banks will initially limit custody services to Bitcoin and Ethereum. This means that newer crypto ETFs—such as those tracking XRP, Litecoin, or Hedera (HBAR)—may not receive immediate custody support from traditional financial institutions.

While some ETF issuers might migrate their products to bank custody services, McClurg noted that it could take years for banks to fully integrate crypto custody operations due to technological and regulatory hurdles. However, mergers and acquisitions (M&A) could accelerate the process, allowing banks to scale their digital asset services faster.

New Accounting Standards and Disclosure Rules

In place of SAB 121, the SEC has introduced Staff Accounting Bulletin 122 (SAB 122), requiring firms to evaluate their crypto custody responsibilities under broader accounting frameworks, such as U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).

The new guidelines will take effect for fiscal years beginning after Dec. 15, 2024, though companies have the option to adopt the changes earlier. The SEC also emphasized that firms must continue to disclose crypto custody obligations transparently under existing reporting requirements.

Regulatory and Legislative Background

The removal of SAB 121 follows multiple attempts by Congress to repeal the rule. Last year, a bipartisan bill seeking its removal gained support in both chambers but was vetoed by then-President Joe Biden. Now, under a new regulatory environment, the SEC’s decision signals a major shift in how crypto assets are accounted for within traditional financial institutions.

As banks step into the digital asset space, the move could pave the way for broader institutional adoption, reshaping the landscape of crypto ETFs and custody solutions in the years ahead.