A major regulatory barrier to institutional crypto adoption is gone - regulated entities are no longer required to classify custodied crypto assets as liabilities on their balance sheets.
On January 23, 2025, the SEC issued Staff Accounting Bulletin No. 122 (SAB 122), revoking the controversial guidelines outlined in SAB 121, opening the door for traditional financial institutions to scale their crypto custody operations.
Issued in March 2022, SAB 121 introduced strict reporting and risk assessment requirements for financial institutions holding cryptocurrency on behalf of clients. The most significant and widely criticized provision required institutions to classify custodied crypto assets as liabilities on their balance sheets.
This meant that banks and financial firms had to allocate significant reserve capital to back these positions, making crypto custody an unappealing, capital-inefficient business model. As a result, most traditional financial institutions avoided offering crypto custody, leaving the space dominated by crypto-native custodians.
While SAB 121 aimed to enhance oversight, critics argued that it deviated from standard accounting practices, stifled competition, and pushed market participants toward riskier, largely unregulated custodians. It also limited the choice of custodians, heightening concentration risk and increasing systemic vulnerabilities.
SAB 122 removes the requirement for banks to classify client-held cryptocurrencies as balance sheet liabilities, eliminating one of the biggest barriers to scaling crypto custody. This shift makes it far more viable for regulated financial institutions to offer custody services.
Of course, institutions must still meet key reporting and risk assessment obligations, including:
By taking a more balanced approach, SAB 122 enables broader institutional participation in the U.S. crypto market while maintaining necessary safeguards. The new rule applies retrospectively for annual periods beginning after December 15, 2024, though firms may adopt it earlier to align past financial statements and ease the transition.
With SAB 122 replacing SAB 121, the institutional landscape for crypto is transforming. The removal of punitive balance sheet requirements means:
This newfound competitiveness in custodial product capital efficiency creates a major opportunity for fast moving market participants. However, building the data, accounting and reporting infrastructure required is complex and time-intensive. Entities considering such offerings will have to decide between self building, which could take years depending on complexity, or integrating dedicated third-party back-office solutions such as Cryptio.
Self building comes with high upfront and ongoing costs, but the bigger risk is lost market share due to delays in time to market.
Back-office solutions provide a much faster path to market - for instance Cryptio already provides the end-to-end data, accounting, and regulatory compliance solutions needed to navigate the complexities of the evolving crypto space.
Our latest platform iteration, Bedrock, offers enterprises:
SAB 122 represents a watershed moment for crypto’s integration into traditional finance. With regulatory barriers easing, banks, custodians, and asset managers can finally enter the space at scale. This shift will not only drive institutional adoption via increased offerings of custodial crypto products, but also reshape the financial infrastructure underpinning digital assets.
Speed is everything in this new era of regulated finance. The faster you develop and integrate the right accounting and reporting infrastructure, the stronger your first-mover advantage. Cryptio provides the foundation and expertise to get you there—faster.
Book a demo with our team today.