BNY Mellon Receives SEC Green Light for Bitcoin Custody Services

In a notable advancement for Bitcoin (BTC), the wider crypto market, and the conventional banking sector, BNY Mellon has been recognized as the inaugural bank to obtain an exemption from the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) 121.

Unchained first reported the news during a public hearing of the Wyoming Select Committee on Blockchain, Financial Technology, and Digital Innovation earlier this week.

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BNY Mellon, the largest custodian bank in the United States, was the focus during the testimony of Chris Land, general counsel for pro-Bitcoin US Senator Cynthia Lummis.

Land confirmed that the SEC has granted BNY an exemption from the stipulations of SAB 121, which requires financial institutions holding cryptocurrencies to record these digital assets on their balance sheets and reflect corresponding liabilities.

Land remarked: “BNY is aiming to enhance its involvement in the crypto custody realm,” indicating not just a strategic pivot for the bank towards institutional digital asset management but also a heightened optimism for Bitcoin’s adoption to broaden the services and offerings of these establishments to their clientele.

Unchained also highlights that the SEC’s exemption for BNY Mellon could open doors for other financial institutions to pursue comparable prospects. However, the SEC’s SAB 121 still necessitates custodians to account for Bitcoin or other crypto assets on their balance sheets, a requirement that has proven challenging for many banks.

Nonetheless, the SEC’s chief accountant, Paul Munter, recently suggested that certain exceptions might apply under undisclosed conditions.

BNY Mellon operates under the oversight of the New York Department of Financial Services (NYDFS) and the Federal Reserve, which is crucial for its compliance and operational framework.

Land stressed that the Federal Reserve would need to provide a non-objection for BNY’s foray into the digital asset custody market, although the specific requirements remain somewhat unclear.

Chair Cyrus Western of Wyoming’s Select Committee raised concerns about whether BNY would be required to obtain New York’s BitLicense, a regulatory prerequisite for cryptocurrency enterprises in the state. Land proposed that BNY could contend that federal banking laws take precedence over state regulations like the BitLicense.

According to the report, the exemption granted to BNY has sparked concerns among other crypto firms, including Custodia Bank and crypto exchange Kraken, who have voiced their dissatisfaction over what they see as “regulatory favoritism.”

Western noted that while companies like Custodia Bank have complied with regulations and aimed for transparency, they feel overlooked in favor of larger entities like BNY.

On a more optimistic note, Michael Novogratz, CEO of Galaxy Digital, speculated that the SEC’s exemption could encourage more traditional banks to engage with cryptocurrency.

This aligns with comments from BNY Mellon’s Chief Executive Officer Robin Vince regarding the bank’s preparations for a more engaged role in the digital asset arena.