BNY Mellon, one of the oldest banks in the US, received a non-objection from the Securities and Exchange Commission (SEC) for expanding its crypto custody services beyond its initial Bitcoin and Ethereum exchange-traded fund (ETF) plan.
This regulatory nod signifies a major step for traditional financial institutions looking to enter the digital asset space.
BNY Mellon’s Custody Model Offers Flexibility Beyond Bitcoin and Ethereum
The non-objection indicates that BNY Mellon’s proposed structure for digital asset custody complies with the agency’s regulations on safeguarding assets. Although not a formal approval, this non-objection provides regulatory assurance that the bank’s model is sound and does not violate any existing guidelines. Moreover, it allows BNY Mellon to move forward with its custody services for Bitcoin and Ethereum ETFs without additional approval processes.
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According to SEC Chair Gary Gensler, the grant of non-objection to BNY Mellon covers more than just Bitcoin and Ethereum. The bank’s proposed structure can be applied to other digital assets, offering flexibility in scaling its crypto services.
“Though the actual consultation related to two crypto assets, the structure itself was not dependent on what the crypto was. It didn’t matter what the crypto was,” Gensler stated, as reported by Bloomberg.
BNY Mellon’s proposed custody structure focuses on segregating customer assets from the bank’s own assets. Each client’s digital assets are stored in individual crypto wallets, which correspond to separate bank accounts. This structure is crucial for protecting customer funds in the event of insolvency.
This emphasis on asset segregation also addresses concerns heightened by recent high-profile crypto collapses. For instance, the Celsius, FTX, and Voyager incidents have left many customers without access to their funds. By keeping customer assets separate, BNY Mellon’s model will provide investors with greater security.
Initially, BNY Mellon announced its technical readiness for digital asset custody in 2022. However, the introduction of the SEC’s Staff Accounting Bulletin 121 (SAB 121) hindered its rollout. SAB 121 requires banks to reflect the value of digital assets they hold on their balance sheets, complicating the offering of crypto custody services for traditional financial institutions.
However, the non-objection allows BNY Mellon to bypass SAB 121 specifically for crypto exchange-traded product (ETP) clients. This exemption means the bank does not have to apply SAB 121’s stringent requirements to Bitcoin and Ethereum ETF custody services, although the rule still applies to other digital asset services.
This development has garnered attention from the crypto community and experts. Bill Hughes, Senior Counsel and Director of Global Regulatory Matters at Consensys, said it reflects a regulatory shift.
“This will signal to other institutions that the days are numbered for the SEC’s de facto ban against traditional institutions providing crypto-related financial services such as custody. These firms entering the market would add competition and make custody safer for all investors, which is ironically what the SEC has recently been fighting so hard to prevent,” he told BeInCrypto.
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As one of the largest financial institutions globally, overseeing more than $50 trillion in assets as of June 2024, BNY Mellon positions itself well to offer secure digital asset custody solutions. The bank already supports around 80% of SEC-approved Bitcoin and Ethereum ETPs through its fund services.
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