U.S. regulators have fundamentally changed how banks and financial firms can handle crypto custody, removing accounting barriers that previously discouraged institutional participation in digital asset safekeeping. The Securities and Exchange Commission (SEC) replaced a restrictive accounting rule with more flexible guidance, signaling that 2026 will be a pivotal year for institutional adoption of crypto custody services.

What Changed in Crypto Custody Accounting?

In early 2025, the SEC rescinded Staff Accounting Bulletin (SAB) 121, a rule that required firms providing custody services for crypto assets to record the value of those assets on their own balance sheet. This created a major problem for banks and financial institutions with strict capital requirements. The replacement guidance, SAB 122, gave firms significantly more discretion in determining whether crypto assets should be recorded as liabilities based on the likelihood and value of potential losses.

This shift matters because it removes a major cost barrier. Banks with regulatory capital requirements, such as minimum capital ratios, previously faced substantial balance sheet impacts from holding customer crypto assets. The new approach opens the door for major banks to provide custody services without triggering the same accounting burden.

How Are Regulators Supporting Institutional Crypto Custody?

• SEC Guidance Overhaul: The SEC terminated most enforcement actions pending against crypto firms and rescinded guidance that had discouraged banks from engaging with crypto companies or providing custody services to customers.
• Banking Regulator Support: The Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) have all rescinded guidance that previously discouraged banks from engaging with crypto firms or offering crypto custody services.
• Department of Justice Shift: The Department of Justice announced it would cease targeting crypto exchanges and service providers for the actions of their users or for unwitting violations of regulations, except in cases involving customer fraud or unlawful conduct by cartels and terrorists.

Why Does This Matter for Crypto Users and Institutions?

The regulatory shift reflects a broader policy change at the federal level. In 2025, Congress passed the GENIUS Act, the first major U.S. law specifically designed to regulate a crypto asset class, establishing a comprehensive regulatory framework for stablecoins. This landmark legislation addressed key regulatory issues including what types of firms could issue stablecoins, the respective roles of federal and state regulators, management of reserve assets, and the payment of interest on stablecoin holdings.

For institutional investors and traditional financial firms, the new custody framework means they can now integrate digital assets into their operations more easily. This includes using crypto in treasury management, cross-border transactions, and payments without facing the same regulatory friction that previously existed.

The Treasury Department also removed sanctions imposed on Tornado Cash, which had previously been accused of facilitating money laundering of more than $7 billion in cryptocurrency, including $455 million stolen by a North Korean state-sponsored hacking group. This action signals a more nuanced regulatory approach to crypto infrastructure.

What's Next for Crypto Regulation in 2026?

Congress is currently considering the Digital Asset Market Clarity Act (the "CLARITY Act"), which would complement the GENIUS Act by establishing a regulatory regime for digital assets beyond stablecoins. The Act would narrow the SEC's jurisdiction over digital assets and define most types of digital assets as commodities under the jurisdiction of the Commodity Futures Trading Commission (CFTC). The House passed the CLARITY Act with bipartisan support in July, though Senate passage has been complicated by debates over stablecoin interest provisions.

The SEC and CFTC have also launched a "Harmonization Initiative" to eliminate duplicative and conflicting regulatory requirements and provide clear guidance on jurisdictional boundaries. This coordination effort aims to reduce confusion for firms operating across both securities and commodities markets.

Additionally, the SEC is exploring significant regulatory changes to expand the crypto industry, including allowing a temporary "innovation exemption" to allow firms to bring new products to market while waiting for regulatory approvals. The SEC is also adopting regulations to allow tokenized securities to trade on platforms not regulated by the SEC, potentially opening new avenues for digital asset trading infrastructure.

The broader policy environment reflects a deliberate shift toward integrating digital assets into traditional financial infrastructure. The U.S. government itself has taken steps in this direction, with the President signing an executive order in January 2026 establishing a working group of federal agencies to recommend federal policy changes to support the growth of digital assets, including evaluating the feasibility of a national digital asset stockpile. According to press reports, the U.S. government holds approximately $29 billion in Bitcoin, a 50 percent increase since a year ago.

For crypto users and institutions alike, the message is clear: custody and safekeeping of digital assets are becoming increasingly integrated into the traditional financial system, with regulatory frameworks designed to support rather than restrict institutional participation.