C.6 Transition Considerations and Other Hot Topics

More than one entity with a safeguarding obligation for the same crypto assets — All entities with a safeguarding obligation were within the scope of SAB 121; as a result, more than one entity may have recognized a safeguarding obligation for the same crypto assets. This situation is described in Question 6 in Appendix B of the AICPA Practice Aid, which presents a scenario in which a custodian engages a subcustodian.

Type of blockchain used to safeguard the crypto assets — Crypto assets on certain private permissioned blockchains may be outside SAB 121’s scope since they may not carry the same risks as crypto assets on a public blockchain described in SAB 121. This is because, for private blockchain assets, a fraudulent transaction often may be canceled or an inappropriate transaction corrected, thereby preventing the assets’ loss, theft, or misuse. However, entities should not assume that all private blockchain applications are outside SAB 121’s scope.

Tokens that are not assets in and of themselves — Some tokens used on blockchains are evidence of ownership of another asset. Current examples of such tokens in practice include dollar tokens used by some banks to facilitate cash transfers and tokenized securities used to facilitate repos by using a blockchain solution. An entity needs to evaluate whether a token meets the definition of a discrete asset before determining whether it has a safeguarding obligation under SAB 121. If a token merely serves as a digital representation of an underlying asset and is used to record ownership of an underlying asset on the blockchain, it is most likely not a separate asset in and of itself and SAB 121 may not be applicable. See Section 3.3 for additional considerations related to tokens that are digital representations of other assets.

Evaluation of self-custodied wallet offerings — Certain entities offer crypto asset wallet software services in which users can create a self-custodied wallet for transacting in and storing crypto assets. In a manner consistent with Question 5 in Appendix B of the AICPA Practice Aid, if the entity only provides wallet software tools to the user, who is responsible for generating its own seed phrases and controlling its own private key information, a safeguarding obligation may not exist. This outcome is consistent with the notions that (1) a user with a self-custody wallet, by definition, takes sole responsibility for the custody of all wallet contents and (2) there is no expectation whatsoever that any third party will provide safeguarding services. Nonetheless, because the SEC has historically expressed a broad view of scope for SAB 121, it is important for entities to evaluate other relevant interpretive guidance in Appendix B of the AICPA Practice Aid in such circumstances. This evaluation would include an assessment of the various factors in Question 7 in Appendix B of the AICPA Practice Aid.

Effect of SAB 121 on broker-dealers — SAB 121 had the potential to affect broker-dealers since their services often include linking a customer with a custodian. In addition, the regulatory capital requirements for broker-dealers could be negatively affected by the inclusion of a safeguarding obligation. In his remarks at the 2024 AICPA & CIMA Conference on Banks & Savings Institutions, SEC Chief Accountant Paul Munter highlighted that the SEC staff discussed a number of scenarios in which a registered broker-dealer is involved in facilitating the purchase, sale, and holding of crypto assets by others (i.e., an introducing broker-dealer). The SEC staff has indicated that, in these transactions, it would not object to an accounting conclusion that a broker-dealer does not have a SAB 121 safeguarding obligation if certain facts and circumstances exist. For more information, see the February 2024 highlights from the meeting between the SEC and the AICPA Stockbrokerage and Investment Banking Expert Panel.

SEC guidance to banks — In his remarks at the 2024 AICPA & CIMA Conference on Banks & Savings Institutions, Mr. Munter highlighted certain observations from a recent accounting consultation in which the SEC did not object to a registrant’s accounting conclusion that it does not have a safeguarding obligation. The inquiry involved a regulated banking entity that held the private keys on behalf of its institutional customers. Mr. Munter noted that the SEC staff considered certain persuasive facts in reaching its conclusion but that none of the facts should be considered individually determinative.