Bank of New York Mellon Corp. (BNY Mellon) has received a significant green light from the Securities and Exchange Commission (SEC) regarding its proposed structure for digital asset custody. SEC Chair Gary Gensler revealed that the approval extends beyond the initial scope of Bitcoin and Ether exchange-traded funds (ETFs), potentially paving the way for broader adoption of crypto custody services by traditional financial institutions.
Earlier this week, BNY Mellon submitted a plan to the SEC’s Office of Chief Accountant outlining its approach to safeguarding customer digital assets, specifically Bitcoin and Ether, in a manner that protects against bank insolvency. The SEC issued a “non-objection” to this plan, signifying that BNY Mellon’s structure complies with the agency’s requirement for banks to accurately reflect the value of custodied digital assets on their balance sheets. While BNY Mellon initially indicated the approval was specific to ETFs, Gensler clarified this understanding.
“Though the actual consultation related to two crypto assets, the structure itself was not dependent on what the crypto was,” Gensler stated Thursday following a speech at the Federal Reserve Bank of New York’s annual US Treasury Market Conference. “It didn’t matter what the crypto was.”
Gensler highlighted the innovative aspects of BNY Mellon’s plan, which utilizes individual crypto wallets, each linked to a separate bank account, preventing commingling with bank assets. This structure, he emphasized, directly addresses concerns surrounding the loss of customer assets in the event of bank failure – a significant issue highlighted by the collapses of platforms like Celsius Network, FTX, and Voyager Digital. Gensler suggested that any bank adopting a similar structure would likely receive the same non-objection from the SEC.
The approval is significant because Bitcoin and Ether ETFs are currently the only crypto-related ETFs approved by US regulators. While BNY Mellon needs further approval from prudential regulators, this SEC nod significantly reduces a major hurdle for banks considering offering crypto custody services.
Gensler also noted that several other banks and brokers are exploring similar custody structures designed to segregate customer assets, potentially circumventing the requirements of Staff Accounting Bulletin 121 (SAB 121), a controversial SEC measure outlining balance sheet requirements for crypto assets. The industry has expressed considerable opposition to SAB 121, but President Biden vetoed Congressional attempts to overturn it earlier this year.
The potential market for crypto custody is substantial. Estimates place the current market value at approximately $300 million, growing at a rate of roughly 30% annually.
