Word on the Street - SEC Staff Bulletin 122 - Obligations to Safeguard Crypto-Assets an Entity Holds for its Platform Users

The SEC (Securities and Exchange Commission) just made a rule change with Staff Accounting Bulletin No. 122 (SAB 122). Here’s what it means in simple terms:

What Changed:

The SEC got rid of old rules specifically for companies that hold crypto for other people, like exchanges.

Now, those companies have to follow the same general accounting rules as other businesses. They need to figure out what could go wrong (like hacks or stolen crypto) and show how much it might cost them if it does.

This starts in late 2024, but companies can switch to the new system earlier.

Real-World Example for an Average American:

Let’s say you store your Ethereum on Robinhood’s crypto platform. If something goes wrong—like a cyberattack that steals your Ethereum—Robinhood now has to:

• Recognize the risk that this could happen.
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• Disclose the details of how they’re protecting your assets and how they’d handle losses.

For you, this means more transparency. You’d have a better idea of how safe Robinhood is before deciding whether to leave your crypto there or move it somewhere else.

Real-World Example for a Trader:

Imagine you’re investing in Block, Inc. (formerly Square), a company that offers crypto services through its Cash App. Under the new rule, Block has to:

• Evaluate the risks of holding crypto for customers (e.g., hacks, system failures, or legal issues).
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• Show those risks and any possible costs (like having to pay customers back) in their financial reports.
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If Block discloses that they’re taking on high risks with crypto or they might owe a lot of money if something goes wrong, their stock price could drop. On the flip side, if they show they’ve got strong protections in place, that could make them more attractive to investors.

As a trader, this helps you decide whether Block is a smart investment based on how they’re managing crypto-related risks.

Why This Matters:

• For the average person: It’s about knowing how safe your money is with crypto platforms.
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• For traders: It’s about understanding which companies handle crypto responsibly and what risks they might be taking on, which could affect their stock.
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• In short: The SEC wants companies to be more honest about crypto risks so you can make smarter decisions—whether you’re using their services or investing in them.
  
  Read the Accounting Bulletin:
  https://www.sec.gov/rules-regulations/staff-guidance/staff-accounting-bulletins/staff-accounting-bulletin-122