SEC Exemption Boosts Mellon Bank, Cryptocurrency Custody Set to Go Mainstream

In a recent report, it was revealed that Bank of New York Mellon Corp., also known as BNY, has obtained a special exemption from the SEC to not comply with the SAB 121 accounting guidance for institutional crypto custody business, as disclosed during a public hearing held in Wyoming on September 16. Now, Bloomberg has also confirmed this news, stating that the company is further launching custody services for bitcoins and ether held by exchange-traded products (ETFs).

BNY Mellon becomes the first bank to receive SEC exemption from SAB 121 for crypto custody, exempting it from reporting cryptocurrencies on financial statements.

Systemically Important Banks to Enter Cryptocurrency Custody

New York Mellon Bank (BNY) is the largest custodian bank in the United States and one of the 29 Global Systemically Important Banks (G-SIBs) recognized by the Financial Stability Board (FSB), Basel Committee on Banking Supervision (BCBS), and national authorities. G-SIBs are institutions deemed "too big to fail" and are required to have higher loss-absorbing capacity.

The latest list includes globally renowned banks such as JPMorgan Chase, Bank of America, Citibank, HSBC, and New York Mellon Bank among the 29 G-SIBs.

What Does SAB 121 Exemption Mean?

The SAB 121 accounting guidance rule mandates entities choosing to custody cryptocurrencies to include the crypto assets on their balance sheets and establish corresponding liabilities. This rule highlights specific considerations in financial reporting for the unique risks associated with crypto assets, such as technological, legal, and regulatory uncertainties.

According to SAB 121, entities with custody responsibilities for crypto assets must recognize custody obligations and the related assets on their balance sheets, measured at fair value. The concept entails custodians setting aside corresponding reserves, posing a significant challenge for heavily regulated banks as they may be subject to higher requirements, which has been one of the reasons major banks were hesitant to venture into crypto custody. The SEC's exemption is significant for other banks looking to enter the crypto custody space.

Mellon Bank Already Custodying 80% of Bitcoin and Ethereum ETFs

New York Mellon Bank publicly expressed interest in digital assets since January 2023, with CEO Robin Vince stating during an earnings call that digital assets are the bank's "longest-term investment." As reported by Bloomberg, the bank supports 80% of SEC-approved Bitcoin and Ethereum ETFs through its fund servicing business, specifically in the realm of "cash and securities custody."

Participating in the operation of crypto asset ETFs has provided Mellon Bank with a deeper understanding of how crypto assets work, serving as a significant stepping stone for its foray into crypto asset custody.

Biggest Impact on Coinbase

Currently, in the United States, aside from VanEck Ethereum ETF ETHV custodied by Gemini and Fidelity Ethereum Fund FETH custodied in-house, all other ETF custodianships for Bitcoin and Ethereum spot ETFs are held by Coinbase, including two ETFs issued by asset giant BlackRock.

Recent reports indicate that BlackRock has begun operating Bitcoin nodes to enhance protection measures for Bitcoin spot ETFs, showing lingering uncertainties in the traditional finance sector regarding the crypto space. By implementing more protective measures, traditional investors' confidence is expected to increase. Mellon Bank's entry is believed to further boost traditional investors' confidence and expand the utility of crypto assets.

Analysts note that BlackRock has operated Bitcoin nodes to strengthen protection measures for Bitcoin spot ETFs.