The Bank of New York Mellon Corp. (BNY), a global financial services giant, has secured an exception from the U.S. Securities and Exchange Commission’s (SEC) contentious SAB 121 rule, paving the way for its entry into the lucrative cryptocurrency custody market. This exemption marks a major victory for the bank, as it allows BNY to safeguard cryptocurrency assets for its exchange-traded product (ETP) clients without reflecting these assets on its balance sheet. This move comes as a significant development amid the ongoing debate surrounding the SEC’s SAB 121 rule, which mandates that companies holding customer cryptocurrencies must record them on their balance sheets. Banks have consistently voiced their opposition to this rule, arguing that it hinders their ability to provide custody services for digital assets.
The SEC’s decision not to object to BNY’s plan for cryptocurrency custody is a positive sign for the industry. While the non-objection is currently limited to ETP use cases, it signifies a potential shift in the SEC’s stance toward cryptocurrency custody. BNY intends to continue its dialogue with the Office of the Chief Accountant (OCA) regarding other use cases through the OCA’s ‘facts and circumstances’ process.
This development follows the successful launch of spot Bitcoin and Ethereum exchange-traded funds (ETFs) earlier this year, highlighting the growing appetite for digital assets among institutional investors. Currently, Coinbase dominates the cryptocurrency custody market for ETFs, but Anchorage Digital Bank recently secured a custodian role for the ARK 21Shares Bitcoin ETF. BNY’s entry into this market could bring a much-needed boost to competition and further legitimize the industry.
The broader debate around the SEC’s SAB 121 rule has gained momentum, with Republican lawmakers from both the Senate and House urging the SEC to retract the rule. This is a significant development considering the rule’s impact on the cryptocurrency industry and its potential to deter traditional financial institutions from entering the space. While the rule has faced criticism, it was vetoed by the White House in May.
BNY’s decision to enter the cryptocurrency custody market, coupled with the SEC’s non-objection, suggests a growing acceptance of digital assets within the traditional financial system. This move could further accelerate the adoption of cryptocurrencies and pave the way for a more integrated and inclusive financial landscape.
