BNY Mellon Receives Exemption from SEC’s Rules for Crypto Custody Services

Highlights:

• BNY Mellon has received an exemption from the SEC’s SAB 121 accounting guidelines.
• This exemption will enable BNY to include Bitcoin custody in its business operations.
• Michael Saylor said bank custody could boost Bitcoin’s market value.

Bank of New York Mellon, the largest U.S. custodian bank, reportedly got an exemption from adhering to the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) 121 accounting guidelines, according to testimony at a Wyoming public hearing. These guidelines were once viewed as a significant barrier for banks aiming to enter the crypto custody market. This variance pave the path for BNY Mellon to begin providing crypto custody services to institutional clients.

BNY, America’s largest custodian bank, was identified as having received a “variance” from following the SEC’s SAB 121 accounting guidelines for its institutional crypto custody business.

As part of a broader federal update on Monday, Chris Land, general counsel for U.S. Senator… https://t.co/40XN9f00dd

— Tony Edward (Thinking Crypto Podcast) (@ThinkingCrypto1) September 20, 2024

Testimony from Chris Land, general counsel for US Senator Cynthia Lummis, said:

“[BNY] is looking to get more involved in the crypto custody business,” Land stated. “They had some problems with SAB 121, and the SEC has apparently given them some kind of variance from SAB 121 to move forward.”

SAB 121: A Closer Look

SAB 121 is a regulation that requires crypto custody firms to protect the crypto assets held for their platform users. Implemented in 2022, the rule mandates that these firms record a liability on their balance sheet to represent this obligation.

Additionally, SAB 121 requires crypto custody firms to recognize an asset and a safeguarding liability at fair value for each reporting period. This rule has raised concerns about the SEC’s scope and application, leading some Congress members to consider disapproving it.

However, BNY Mellon, regulated by the Federal Reserve and New York’s Department of Financial Services, may have found a way forward. The SEC and Federal Reserve appear to have given no objections to BNY’s plans for digital asset custody.

BNY Mellon offering crypto custody services could mark a key moment for institutional crypto adoption. This move signals a recognition of Bitcoin and other digital assets as legitimate financial instruments, reinforcing Bitcoin’s status as “real money” in global finance.

Michael Saylor Highlights Bank Custody of Bitcoin and Its Future Impact

Michael Saylor endorsed the news, sharing his views on X. He pointed out that credible rumors are emerging about one or more major US banks soon gaining the ability to custody Bitcoin.

Credible rumors are circulating that one or more major banks in the US will soon be able to custody #Bitcoin. https://t.co/Zq9UzjoUjk

— Michael Saylor⚡️ (@saylor) September 20, 2024

This development might indicate a softening of the U.S. federal crackdown on crypto. For years, industry supporters have criticized U.S. authorities for what they call “Operation Choke Point 2.0,” a multi-regulatory effort to remove crypto from the traditional financial system.

BNY Mellon and other banks gaining the ability to custody Bitcoin could also boost BTC’s spot price. Saylor has previously indicated that bank custody of BTC is the final catalyst needed to drive Bitcoin above $5 million per coin.

MICHAEL SAYLOR: 3 catalysts will take #Bitcoin to $5 million:

🟢 – Spot ETF approval

🟢 – Fair value accounting rules from FASB

🟠 – Banks custody and lend against Bitcoin as collateral – coming soon pic.twitter.com/9uL7fDw0Hr

— Bitcoin Archive (@BTC_Archive) September 20, 2024

BNY Mellon’s receiving an exemption from SEC’s rules has raised concerns within the Bitcoin community. Bitcoin was initially designed as a decentralized currency to circumvent traditional financial systems, particularly large banks. The idea of a big financial institution holding Bitcoin goes against the cryptocurrency’s goal of resisting centralization. Some believe BNY Mellon’s move undermines Bitcoin’s founding principles by connecting it to the system it wanted to challenge.

Congressman Claims SEC Misuses SAB 121 Against Crypto Custody Providers

U.S. Representative Ritchie Torres has strongly opposed the SEC’s SAB 121 policy, stating it contradicts generally accepted accounting principles (GAAP). He also accused the SEC of stifling innovation by discouraging companies from exploring blockchain technology. “There is something profoundly un-American about banning innovation,” Torres remarked.

The SEC has a policy, known as SAB 121, that requires banks to put custodial assets on their own balance sheets—in violation of generally accepted accounting principles.

The SEC is effectively ordering companies not to experiment with blockchain technology. There is… pic.twitter.com/VbI8O442mu

— Rep. Ritchie Torres (@RepRitchie) September 20, 2024