BNY Mellon Moves Toward Crypto Custody Services After SEC Review

According to Cointelegraph, the Bank of New York Mellon (BNY) is advancing its plans to offer custody services for Bitcoin and Ether exchange-traded fund (ETF) clients. This development follows a review by the United States Securities and Exchange Commission (SEC), which concluded that the bank does not need to comply with the SEC’s Staff Accounting Bulletin (SAB) 121. SAB 121, introduced in April 2022, mandates that companies holding client crypto assets must list them as liabilities in their accounting. This guideline has been a significant challenge for the US crypto industry. However, the SEC’s Office of the Chief Accountant determined that BNY Mellon’s circumstances differ from those described in SAB 121, allowing the bank to bypass this requirement. The SEC hinted that other financial institutions might also receive similar exemptions. A spokesperson stated that certain broker-dealers and custody banks have demonstrated that their situations differ from those outlined in SAB 121. As long as customers receive the same protection for safeguarding crypto assets as they do in traditional custody arrangements, the balance sheet treatment will be the same. BNY Mellon will need authorization from other regulators in addition to the SEC before it can begin offering these custody services. The bank has stated that it is actively engaging with its banking regulators to provide custody services to crypto ETP clients at scale. SAB 121 has been a contentious issue since its introduction. Coinbase’s Q1 2022 financial report, which incorporated the new accounting guidelines, led to false speculation about the company’s financial stability. In June 2022, politicians wrote to SEC Chair Gary Gensler, criticizing the guidance as “regulation disguised as staff guidance.” The Government Accountability Office reviewed the guidance at the request of pro-crypto Senator Cynthia Lummis and determined in October 2023 that SAB 121 falls under the Congressional Review Act, which requires agency rules to be submitted to Congress for potential disapproval. Despite pressure from various financial organizations and a coalition of industry groups, the SEC maintained its stance on the guidance. Legislation to overturn SAB 121 was passed in May, but US President Joe Biden vetoed it the following month.