BNY Mellon, one of the US’s oldest and largest banking institutions, is making significant strides toward offering custody services for Bitcoin and Ether exchange-traded fund (ETF) clients. This move comes after a crucial decision by the Securities and Exchange Commission (SEC) to relax specific requirements surrounding the controversial Staff Accounting Bulletin (SAB) 121.
What is SAB 121?
Introduced in April 2022, SAB 121 created new guidelines that forced financial institutions holding digital assets like Bitcoin on behalf of their clients to list these assets as liabilities on their balance sheets. This rule, meant to reflect the inherent risks of digital asset custody, was seen as a deterrent by many banks and companies involved in cryptocurrency. The mandate added to the complexity of accounting and increased regulatory scrutiny for financial institutions looking to offer cryptocurrency services.
For many in the US Bitcoin industry, this guideline was a roadblock to mainstream financial institutions adopting cryptocurrencies. The requirement had caused significant frustration, as institutions feared that listing digital assets as liabilities would increase their risk profiles, thus complicating their financial statements.
SEC’s Reassessment of SAB 121
After an in-depth review, the SEC’s Office of the Chief Accountant announced that BNY Mellon and some other custody banks did not need to follow SAB 121. The determination came after BNY Mellon demonstrated that its approach to safeguarding customer assets differed from the scenarios originally described in the bulletin.
The SEC clarified that “certain broker-dealers and custody banks have sufficiently demonstrated to SEC staff that their fact patterns are different from those described in SAB 121.” Essentially, BNY Mellon’s internal protections and the nature of its custody services offered clients a higher level of asset protection, allowing the bank to bypass the SAB 121 rule.
BNY Mellon’s Next Steps
Although the SEC has given BNY Mellon the green light to move forward without adhering to SAB 121, the bank still needs approval from other regulators before it can fully offer custody services for crypto ETF clients. BNY Mellon stated that it has been engaging with banking regulators and will continue to do so to bring these services to scale.
The bank’s entry into the cryptocurrency custody space is a significant milestone for the crypto industry. As a trusted institution with a long history in traditional finance, BNY Mellon offering crypto custody services could enhance confidence among institutional investors looking to enter the market.
Political Backlash and Market Impact
SAB 121 has been a source of political contention since its introduction, drawing pushback from industry leaders, lawmakers, and even the public. Congress passed a measure to overturn SAB 121, which was eventually vetoed by President Biden. The debate highlights the growing importance of regulatory clarity in the crypto space, as more traditional financial institutions express interest in digital assets.
BNY Mellon’s entry into the crypto custody space could set off a significant shift in the market. As a respected financial institution, its involvement could drive more confidence and investment in the sector. Analysts believe that this development might push Bitcoin and other cryptocurrencies to unprecedented highs, especially as ETFs backed by cryptocurrencies become more mainstream.
BNY Mellon’s advancement toward offering Bitcoin and Ether ETF custody services marks a turning point in the intersection of traditional finance and digital assets. The easing of SEC requirements around SAB 121 removes a major barrier for financial institutions entering the crypto space. With further regulatory approval, BNY Mellon could help drive the adoption of cryptocurrencies by offering secure, trusted custody services to institutional investors, potentially leading to a new era of growth for the crypto market.