BNY Mellon Set to Offer Crypto Custody for ETFs After SEC Eases Rules
SEC Adjustments Pave the Way for BNY Mellon
The Bank of New York Mellon (BNY) is preparing to provide custody services for Bitcoin and Ether in its exchange-traded funds (ETFs) following a significant regulatory shift by the United States Securities and Exchange Commission (SEC). The SEC has relaxed its stance on enforcing controversial crypto accounting guidelines, specifically the Staff Accounting Bulletin (SAB) 121.
SEC’s Revised Stance on SAB 121
Earlier this year, the SEC’s Office of the Chief Accountant reviewed SAB 121 and decided that BNY Mellon would not need to follow this guideline for its crypto custody services. SAB 121 requires companies to list client crypto assets as liabilities in their accounting records, a rule that has been a major point of contention within the US crypto industry since its introduction in April 2022.
Potential for Broader Financial Impact
The SEC hinted that other financial institutions might also benefit from this relaxed requirement. A spokesman noted that some broker-dealers and custody banks have demonstrated that their operations differ significantly from those described in SAB 121. As long as clients receive the same level of protection for their crypto assets as they do with traditional custody arrangements, these institutions can expect similar regulatory treatment.
Regulatory Approval Pending
Although the SEC’s decision is a significant step forward, BNY Mellon still needs the approval of other regulatory bodies before it can fully offer these services. The bank has stated its commitment to engaging with its banking regulators to scale its crypto custody services.
The Controversy Surrounding SAB 121
SAB 121 has been a source of controversy since its introduction. When Coinbase included the new accounting guideline in its Q1 2022 financial report, it led to widespread speculation about the company’s financial stability. This spurred political involvement, with several senators writing to SEC Chair Gary Gensler to express their concerns about what they perceived as “regulation disguised as staff guidance.”
In October 2023, the Government Accountability Office (GAO) determined that SAB 121 falls under the Congressional Review Act, which mandates that agency rules must be submitted to Congress for review and potential disapproval.
Industry Pushback and Legislative Actions
The banking industry has also been vocal about its opposition to SAB 121. A coalition comprising the Bank Policy Institute, American Bankers Association, Financial Services Forum, and Securities Industry and Financial Markets Association sent a letter to Gensler in February, requesting that traditional assets recorded on the blockchain be exempt from SAB 121.
Despite mounting pressure, the SEC initially maintained its stance. However, legislation was eventually introduced to overturn the guideline. While the House of Representatives passed the legislation, President Joe Biden vetoed it in June 2023.
Moving Forward
BNY Mellon’s move to offer crypto custody services for ETFs marks a pivotal moment in the intersection of traditional finance and cryptocurrency. The relaxed regulatory environment could pave the way for more financial institutions to enter the crypto custody market, potentially increasing mainstream adoption of digital assets.
As the regulatory landscape continues to evolve, financial institutions and crypto enthusiasts alike will be watching closely to see how these changes impact the broader market.
