With the blessing of the SEC, BNY Mellon will be allowed to hold assets for investors who own its crypto exchange-traded products (ETP), without needing to reflect these assets on its balance sheet. BNY aims to be the first bank to offer cryptocurrency custody services for its bitcoin and ether ETP clients.
The offering highlights the ongoing drama surrounding the SEC’s SAB 121 rule, which requires companies holding customers’ cryptocurrencies to record them on their balance sheets. Earlier this year, the SEC’s Office of the Chief Accountant reportedly reviewed BNY Mellon’s approach to crypto custody and said it had no problem with the bank’s decision not to list crypto assets as liabilities.
According to BNY, the SEC’s waiver of SAB 121 is specific to this particular use case for ETPs. It remains unclear whether other asset managers offering crypto investment products, like Fidelity, will apply for similar exemptions.
For many observers, this has raised the question of why this exemption has been carved out.
SEC chief Gary Gensler stated in his congressional testimony earlier this week that he won’t repeal SAB 121. In support of that position, he cited the FTX and Terraform bankruptcies and argued that crypto represents a liability for banks and asset managers offering ETPs that hold digital assets.
“Earlier today, Chair Gensler indicated that he would not rescind SAB 121,” responded Congressman Mike Flood (R-Nebraska). “Now that the office of the Chief Accountant is picking and choosing who needs to comply with SAB 121, why wouldn’t SEC simply rescind SAB 121 entirely?”
A Controversial Measure
SAB 121 has been controversial since the SEC adopted it in 2022. The goal aimed to enhance transparency in financial statements, clarifying the risks for those investing in crypto assets. However, the additional regulation and complexity have deterred some banks from entering the crypto space.
In May, the Senate rejected SAB 121 in bipartisan fashion, intending to expand opportunities for retail investors to hold digital assets in their bank accounts. However, this reversal of the regulation was subsequently vetoed by President Biden.
The BNY decision cracks open the door for more banks to custody crypto—provided they can obtain the proper permissions.
“BNY Mellon and so many others have been in the business of custodying people’s assets for 200 some years,” Flood told CoinTelegraph earlier this year. “They don’t want to be left on the sidelines.”