The United States Securities and Exchange Commission (SEC) has approved the Bank of New York Mellon Corp (BNY) ’s custody of crypto assets beyond ETFs.
SEC Chair Gary Gensler announced the decision after speaking in front of the Federal Reserve of New York. The announcement could disrupt Coinbase, the current leading digital asset custodian for most spot Bitcoin ETFs.
BNY Receives SEC Approval To Expand Crypto Custody
BNY Mellon currently controls over $2 trillion in crypto assets. The bank’s current structure, which is used to offer crypto custody services, already includes spot Bitcoin and Ethereum ETFs. Recently, the bank submitted a proposal to the SEC’s Office of Chief Accountant to custody BTC and ETH in a way that would protect customer funds in the event of an insolvency. The bank revealed it had now received a “no-objection” from the SEC for its proposal, allowing it to safeguard digital assets without listing them as balance sheet liabilities. The move makes it significantly easier for the bank to offer custody services and adhere to regulatory requirements.
SEC Chair Gary Gensler discussed BNY Mellon’s crypto custody structure, suggesting its model could also be applied to other digital assets. Gensler noted that while the current approval applies to Bitcoin and Ethereum ETFs, the custody structure is not limited to specific crypto assets.
“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.”
The approval allows BNY to offer its custody services to other digital assets it selects. It also allows other banks to adopt the same model when offering crypto custody and expands the digital assets they can custody.
Regulatory Conditions
The SEC’s approval is contingent on BNY Mellon’s use of individual crypto wallets. This will ensure customer assets are safeguarded and segregated from those of the bank in the event of insolvency. The wallet structure, developed in collaboration with the SEC’s Office of the Chief Accountant, played a crucial role in securing a “no objection” decision from the SEC. BNY Mellon will also have to approach the Office of the Chief Accountant on a case-by-case basis. According to BNY, this does not completely solve the SAB 121 issue. The bank added it would engage with the Office of the Chief Accountant on additional use cases.
BNY Mellon’s move into crypto custody gives it a strategic advantage and makes it a competitive player in the crypto custody market. This allows it to target institutional clients looking for a secure and compliant avenue to invest in digital assets through ETFs. The cryptocurrency custody market is estimated to be worth around $300 million and growing by 30% annually. It presents a highly lucrative opportunity for financial institutions, allowing banks such as BNY Mellon to capitalize on the growing demand for such services.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
