Accounting Barriers Fall for Banks, Federal Regulators Clear the Path, and the GENIUS Act Reshapes the Competitive Landscape, but State-Regulated Money Transmitters Face Mounting Indirect Pressure
In a significant regulatory shift signaling a more crypto-friendly stance, the U.S. Securities and Exchange Commission (SEC) rescinded controversial accounting guidance that had effectively barred major financial institutions from offering digital asset custody services. The move, formalized through Staff Accounting Bulletin No. 122 (SAB 122) on Jan. 23, 2025, eliminated requirements that made crypto custody economically prohibitive for publicly traded banks. What began as an accounting rule change has since catalyzed a sweeping transformation of the digital asset landscape, with federal banking regulators, Congress, and Wall Street moving decisively to integrate crypto into the mainstream financial system. However, the impact on state-regulated money transmitters has been indirect yet consequential, reshaping competitive dynamics rather than altering direct regulatory obligations.
The SAB 121 Problem
SAB 121, issued in March 2022, fundamentally changed how companies that hold crypto assets for customers must report those holdings. Under the guidance, entities with obligations to safeguard crypto assets were required to record a liability and a corresponding asset on their balance sheet at the fair value of the crypto assets, as stated in the SEC’s original bulletin.[1]
For a bank holding $10 million in client crypto assets, this meant recognizing a $10 million liability on its balance sheet, even though the bank did not own those assets and was merely acting as a custodian. The accounting treatment created what industry observers described as a major operational burden, particularly because regulatory capital requirements are tied to balance sheet composition.[2]
Industry analysts noted that the guidance undermined existing accounting practice, which did not require assets held in custody to be recorded on a custodian’s balance sheet. The requirement to measure these liabilities at fair value in each reporting period also heightened the unpredictability of capital requirements, given the volatility of crypto assets.[2]
The result was predictable: Since it was operationally infeasible for SEC-reporting banks to comply with SAB 121, most chose to forgo crypto-asset custody altogether.[2]
The Political Battle
SAB 121 drew fierce criticism from both sides of the political aisle. The American Bankers Association urged the commission to rescind the bulletin, arguing that it curtailed member banks’ ability to develop and bring digital asset products and services to market at scale.[3] SEC Commissioner Hester Peirce, known in crypto circles as “Crypto Mom,” noted that the SEC had contributed to the legal and regulatory risks by refusing to provide guidance on how its rules apply to crypto assets.[4]
Congress responded with bipartisan legislation. Both chambers passed H.J. Res. 109 to overturn SAB 121, but former President Joseph Biden vetoed it in May 2024.[5] The measure was not taken up again during his administration.
SAB 122: A New Approach
With the Trump administration’s return to power in January 2025, the regulatory landscape shifted dramatically. On Jan. 23, 2025 — just three days after President Donald Trump signed an executive order titled “Strengthening American Leadership in Digital Financial Technology” — the SEC issued SAB 122, formally rescinding SAB 121.[6]
The new guidance represents a fundamental change in accounting treatment. Rather than requiring dollar-for-dollar balance sheet recognition of all crypto assets held in custody, SAB 122 directs entities to assess whether to recognize a liability for the risk of loss by applying the recognition and measurement requirements for liabilities arising from contingencies under standard accounting frameworks.[7]
In practice, this means a financial institution holding $10 million in client crypto assets would no longer automatically record a $10 million liability. Instead, under existing Financial Accounting Standards Board (FASB) guidance on loss contingencies (ASC 450-20), the institution would assess its actual risk exposure. If it determines that 5% of those assets face meaningful loss risk, the balance sheet liability would be limited to $500,000, a dramatic reduction.[4]
Ropes & Gray analysts explained that, with the elimination of the special rules for crypto firms under SAB 121, their financials would be subject to the same accounting standards as other industries, reflecting liabilities commensurate with the risks of holding client crypto assets.[4]
Beyond SAB 122: A Cascade of Federal Regulatory Changes
SAB 122 proved to be only the opening salvo in a comprehensive federal regulatory reset. Throughout 2025 and into early 2026, banking regulators dismantled the barriers that had kept traditional financial institutions from entering the digital asset space.
FDIC: Rescinding Prior Notification Requirements
In March 2025, the Federal Deposit Insurance Corporation (FDIC) rescinded Financial Institution Letter-16-2022 (FIL-16-2022), which had required FDIC-supervised institutions to notify the agency and obtain supervisory feedback before engaging in crypto-related activities. The new guidance affirmed that FDIC-supervised institutions may engage in permissible crypto-related activities without prior FDIC approval, provided they adequately manage associated risks and comply with applicable laws.[12] The FDIC also signaled its intent to work with other banking agencies to replace the restrictive interagency guidance issued in January and February 2023 with more accommodative frameworks.
OCC: Expanding Permissible Crypto Activities
The Office of the Comptroller of the Currency (OCC) issued a series of interpretive letters in 2025 that progressively expanded the scope of permissible crypto activities for national banks:
Interpretive Letter 1184 (May 2025): Confirmed that national banks and federal savings associations may engage in the purchase or sale of digital assets held in custody at the customer’s direction.[13]
Interpretive Letter 1186 (November 2025): Confirmed that national banks may pay blockchain network fees (“gas fees”) in connection with permissible activities and may hold digital assets as principal in amounts necessary to make such payments.[13]
Interpretive Letter 1188 (December 2025): Clarified that executing riskless principal crypto transactions on behalf of customers is a permissible activity for national banks, allowing banks to broker trades without holding inventory or taking market risk.[14]
Most significantly, on Dec. 12, 2025, the OCC conditionally approved five national trust bank charter applications from firms seeking to offer digital asset products and services: BitGo Bank & Trust, Fidelity Digital Assets, Paxos Trust Company, First National Digital Bank (part of the Circle Internet Group), and Ripple National Trust Bank. These entities will be able to engage in certain banking activities, including custody, settlement, and fiduciary services. The OCC reported receiving 14 de novo charter applications for limited-purpose national trust banks in 2025, nearly matching the total from the prior four years combined.[13] [15]
Federal Reserve: Withdrawing Restrictive Policies
In December 2025, the Federal Reserve (Fed) rescinded its 2023 policy statement, which had established a presumption that limited state member banks to activities permitted for national banks. In practice, that presumption constrained certain digital asset activities. The withdrawal was motivated by what the Fed described as an evolving understanding of the risks in the crypto-asset sector and a desire to facilitate innovation consistent with safety and soundness requirements.[13]
Interagency Crypto Safekeeping Guidance
In July 2025, the Federal Reserve Board, OCC, and FDIC issued a joint statement outlining risk-management considerations for banks that provide crypto-asset safekeeping services. The statement highlighted existing risk-management principles applicable to crypto custody and reminded banks that they must operate in a safe and sound manner. Notably, the agencies emphasized that the statement did not create new supervisory expectations, positioning it as facilitative guidance rather than a new regulatory burden.[16]
The GENIUS Act: Congress Enters the Arena
On July 18, 2025, Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the GENIUS Act) into law, the first major federal digital assets legislation.[17] Following bipartisan passage in the Senate (68–30) and the House (308–122), the Act establishes a comprehensive regulatory framework for payment stablecoins in the U.S.
The GENIUS Act’s key provisions include:
- Payment stablecoins may be issued only by authorized subsidiaries of insured depository institutions, by entities licensed by the OCC as Federal Qualified Payment Stablecoin Issuers (FQPSIs), or by qualifying states as State Qualified Payment Stablecoin Issuers (SQPSIs).
- Issuers must hold reserves backing stablecoins on a one-to-one basis in U.S. dollars, Treasury bills, or other low-risk assets, with monthly certification.
- All issuers must comply with the Bank Secrecy Act by implementing anti-money laundering (AML) and countering the financing of terrorism (CFT) controls.
- Payment stablecoins issued by permitted issuers are excluded from the definitions of “security” under federal securities laws and of “commodity” under the Commodity Exchange Act.
Implications for Money Transmitters
The GENIUS Act carries potentially transformative implications for the money transmitter landscape. K&L Gates attorneys have identified what they call one of the most significant yet rarely discussed implications: The Act may have created a kind of bespoke fintech license that could provide a new national payments rail.[18]
Under the Act, a Permitted Payment Stablecoin Issuer (PPSI) is exempt from state money transmitter or virtual currency licensing requirements for its stablecoin activities. This “passporting” effect allows PPSIs to operate nationwide without obtaining separate licenses in each state, a significant departure from the current patchwork regime that requires fintechs and money transmitters to obtain duplicative licenses in every state where customers reside.[18]
However, this passporting applies only to payment stablecoin activities, not to other activities a firm may conduct. The Conference of State Bank Supervisors (CSBS) has asserted that Senate revisions narrowed the scope of authorized activities for stablecoin issuers, keeping their business model focused on stablecoin-related functions. CSBS has also emphasized that stablecoin issuers should not be authorized to operate as money transmitters or engage in financial activities beyond those explicitly authorized by the Act.[19]
In September 2025, the Treasury Department published an advance notice of proposed rulemaking seeking public comment on the implementation of the GENIUS Act, while the FDIC issued a proposed rule in December 2025 establishing an application process for FDIC-supervised state-chartered banks seeking to issue payment stablecoins through subsidiaries. Final implementing regulations are expected throughout 2026.[17] [20]
The Money Transmitter Divide
The impact of these regulatory shifts depends critically on whether a money transmitter is an SEC-reporting company and, increasingly, on how it positions itself in an evolving competitive landscape.
SEC-Registered Entities
For publicly-traded money transmitters and crypto platforms, including Coinbase, Block (formerly Square), and PayPal, SAB 121 had been a significant constraint, while SAB 122 offered substantial relief. These companies were required to file with the SEC and therefore fell within the scope of SAB 121. Deloitte analysts noted that SAB 122’s rescission would significantly affect the financial statements of entities previously within SAB 121’s scope, as it allows those entities to remove safeguarding assets and liabilities from their balance sheets, except where actual loss contingencies exist.[8]
Beyond SAB 122, these entities have also benefited from the SEC’s broader pivot. Throughout 2025, the SEC terminated most enforcement actions pending against crypto firms, withdrew the proposed Safeguarding Rule, and worked with the Financial Industry Regulatory Authority (FINRA) to withdraw a 2019 joint-staff statement that had prevented broker-dealers from holding digital asset securities in custody. In September 2025, the SEC’s Division of Investment Management issued a no-action letter permitting state-chartered trust companies to be treated as banks for purposes of holding digital assets under certain conditions.[15]
State-Licensed Private Entities
For privately held, state-regulated money transmitters, the regulatory picture remains largely unchanged. SAB 121 and SAB 122 are SEC accounting bulletins that apply only to SEC registrants. State-regulated money transmitters that don’t file with the SEC were never subject to SAB 121’s requirements and see no direct changes under SAB 122.
These entities continue to operate under:
- State money transmitter licensing requirements
- State-level capital and bonding requirements
- Generally Accepted Accounting Principles (GAAP), but without SEC-specific interpretive guidance
However, the cumulative weight of 2025’s regulatory changes has dramatically reshaped the competitive environment in which these entities operate, making the indirect effects increasingly significant.
The Transformed Competitive Landscape
The predictions made by analysts in early 2025 regarding competitive disruption have materialized quickly. Major banks are no longer merely contemplating the crypto-custody market; they are actively entering it.
Wall Street’s Crypto Push
The pace of institutional entry since SAB 122 has been striking:
- BNY Mellon, the world’s largest custodian bank, expanded its Digital Asset Custody platform throughout 2025. In January 2026, the bank announced tokenized deposits on its digital assets platform, enabling clients to manage collateral and margin trading on-chain.[21]
- US Bank resumed cryptocurrency custody services for institutional clients in September 2025 after pausing its offering following SAB 121’s issuance in 2022.[21]
- Citigroup has been developing crypto-custody infrastructure for over two years and is targeting a 2026 launch for institutional clients.[22]
- In December 2025, PNC Bank launched a spot Bitcoin trading service for private banking clients, powered by Coinbase’s crypto-as-a-service infrastructure.[21]
- Bank of America began allowing financial advisors at Private Bank, Merrill, and Merrill Edge to recommend crypto exchange-traded products in January 2026.[21]
- Morgan Stanley filed with the SEC in early January 2026 for a Bitcoin Trust and a Solana Trust and plans to add crypto trading on E*Trade in the first half of 2026.[21]
- JPMorgan Chase explored crypto trading services for institutional investors in late 2025, though it has stated that direct custody is not currently under consideration.[21] [23]
- Deutsche Bank announced plans for full-service digital asset custody in 2026.[24]
Analysts’ 2025 prediction about market differentiation appears to be playing out: Crypto-native firms are increasingly serving token foundations, newer protocols, and venture capital firms, while traditional financial institutions are positioning themselves to serve institutional and retail investors whose portfolios are composed mostly of mainstream digital asset holdings.[2]
Implications for State-Regulated Money Transmitters
State-regulated money transmitters face a fundamentally different competitive environment from the one that existed when SAB 122 was issued. Multiple pressure points have emerged:
- Crypto custody and trading: Major banks can now offer crypto services alongside traditional banking products, creating one-stop-shop convenience that standalone money transmitters struggle to match. Analysts have warned that banks could become dominant distribution channels for basic crypto exposure, putting pressure on retail-focused exchanges and transmitters.[14]
- Stablecoin competition: The GENIUS Act’s passporting provision could eventually allow stablecoin issuers to bypass state money transmitter licensing for stablecoin-related payment services, creating a parallel national payments rail that competes directly with traditional money transmission.[18]
- Charter arbitrage: The OCC’s approval of national trust bank charters for crypto-native firms like BitGo, Paxos, and Ripple enables these competitors to operate under a single federal charter rather than navigating the state-by-state licensing regime that traditional money transmitters must maintain.[13]
- Consolidation risk: Analyst predictions that banks may seek to acquire crypto custodians with the technological capabilities to securely provide custody appear to be materializing, with multiple large institutions pursuing build-or-buy strategies for crypto infrastructure.[2]
Implementation and Ongoing Requirements
SAB 122 requires full retrospective application for annual periods beginning after Dec. 15, 2024. As of early 2026, SEC-reporting entities have largely completed their initial implementation of the new accounting framework.[7]
Importantly, the rescission did not eliminate all accounting considerations for crypto custody. Companies must still assess whether contingent liabilities exist under standard FASB or International Accounting Standards guidance. Disclosure requirements also remain: SAB 122 reminds entities that existing disclosure requirements for investors to understand an entity’s obligation to safeguard crypto-assets held for others still apply, including those under Items 101, 105, and 303 of Regulation S-K. [10]
Some observers have raised concerns about reduced transparency. Under SAB 121, companies had to report customer crypto holdings on their balance sheets, providing at least some disclosure. Under SAB 122, customer assets and associated liabilities are off the books, potentially reducing visibility into whether exchanges and custodians actually hold the crypto they claim to. Industry voices have called for voluntary adoption of Proof of Reserves practices to fill this transparency gap. [25]
Looking Forward: 2026 and Beyond
The regulatory transformation that began with SAB 122 has accelerated far beyond what most observers anticipated. Several developments bear close watching in 2026:
- GENIUS Act implementation: Final implementing regulations from the Treasury Department, OCC, FDIC, and other agencies are expected throughout 2026. These rules will define the practical scope of the stablecoin framework and its impact on existing money transmitter licensing regimes. The Act takes effect on the earlier of 18 months after enactment or 120 days after the primary federal regulators issue final regulations.[17]
- SEC-CFTC Harmonization Initiative: The two agencies have launched a joint effort to eliminate duplicative and conflicting regulatory requirements and to provide clear guidance on jurisdictional boundaries for digital assets. Agency leaders have indicated they will work in 2026 to outline a clear taxonomy for digital assets, reducing regulatory ambiguity.[26]
- Additional banking regulatory guidance: The Federal Reserve has indicated plans to clarify permitted activities and respond to new use cases, while the FDIC is evaluating recommendations from the President’s Working Group on Digital Asset Markets, including the treatment of tokenized deposits.[15]
- New bank entries: Citi, State Street, Deutsche Bank, and other institutions are expected to launch crypto custody services in 2026, further intensifying competition with existing crypto-native firms and money transmitters.[21] [22]
For state-regulated money transmitters, the message has grown louder and more urgent since the issuance of SAB 122. Although the rescission did not directly change their regulatory obligations, the cascade of federal actions that followed has fundamentally redrawn the competitive landscape. Major banks are entering the crypto-custody and trading space with established compliance infrastructure, vast customer bases, and federal regulatory green lights. The GENIUS Act has introduced the possibility of a national payments rail that could partially circumvent state licensing requirements. A wave of national trust bank charters is enabling crypto-native firms to compete under a single federal umbrella.
Smaller and mid-sized money transmitters will need to differentiate by focusing on specialized services, superior customer experience, underserved market segments, or niche capabilities that larger institutions may overlook. Those that adapt strategically may find opportunities in the expanding digital asset ecosystem; those that do not, risk being squeezed between banks moving in from above and newly chartered crypto firms pushing in from the side.
References
[1] https://www.sec.gov/rules-regulations/staff-guidance/staff-accounting-bulletins/staff-accounting-bulletin-121
[2] https://www.k2integrity.com/en/knowledge/policy-alerts/sab-122-implications-for-bank-crypto-custody-innovation
[3] https://bankingjournal.aba.com/2025/01/sec-repeals-controversial-crypto-accounting-rules-for-banks
[4] https://www.ropesgray.com/en/insights/alerts/2025/01/updated-sec-staff-accounting-bulletin-rescinds-sab-121-crypto-accounting-guidance
[5] https://www.duanemorris.com/alerts/sab-121-undone-will-bank-regulations-crypto-follow-0125.html
[6] https://www.bitgo.com/resources/blog/sab-121-to-122
[7] https://www.sec.gov/rules-regulations/staff-guidance/staff-accounting-bulletins/staff-accounting-bulletin-122
[8] https://dart.deloitte.com/USDART/home/publications/deloitte/heads-up/2025/sec-rescinds-sab-121-issues-sab-122-crypto-cryptocurrency
[9] https://www.xbrl.org/news/sec-repeals-crypto-custody-rule-with-sab-122
[10] https://kpmg.com/us/en/frv/reference-library/2025/sec-rescinds-sab-121.html
[11] https://www.bpm.com/insights/sec-crypto-regulation
[12] https://www.fdic.gov/news/financial-institution-letters/2025/fdic-clarifies-process-banks-engage-crypto-related
[13] https://www.sidley.com/en/insights/newsupdates/2026/01/the-state-of-play-in-banking-and-digital-assets-welcome-developments-from-the-banking-agencies
[14] https://www.elliptic.co/blog/crypto-regulatory-affairs-occ-gives-us-banks-go-ahead-on-riskless-crypto-transfers
[15] https://www.klgates.com/Crypto-in-2026-The-Democratization-of-Digital-Assets-1-29-2026
[16] https://www.occ.gov/news-issuances/news-releases/2025/nr-ia-2025-68.html
[17] https://www.lw.com/en/insights/the-genius-act-of-2025-stablecoin-legislation-adopted-in-the-us
[18] https://www.klgates.com/The-GENIUS-Act-and-Stablecoins-Could-This-Replace-State-Money-Transmitter-Licensing-10-6-2025
[19] https://www.csbs.org/csbs-genius-act-implementation-comment-letter
[20] https://www.federalregister.gov/documents/2025/09/19/2025-18226/genius-act-implementation
[21] https://www.ccn.com/education/crypto/10-major-us-banks-building-bitcoin-products/
[22] https://www.cnbc.com/2025/10/13/citi-aims-to-launch-crypto-custody-in-2026-exploring-stablecoin.html
[23] https://www.coindesk.com/policy/2025/12/22/crypto-exchanges-brace-for-pressure-as-banks-like-jpmorgan-enter-spot-trading
[24] https://www.pymnts.com/cryptocurrency/2025/big-banks-pile-into-stablecoin-infrastructure-wall-street-eyes-crypto-custody
[25] https://www.thenetworkfirm.com/blog/sab-122-just-changed-everything-for-crypto
© Copyright 2026. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
