BNY Approaches Crypto Custody for ETFs as SEC Eases SAB 121 Guidelines

The Bank of New York Mellon (BNY) is on the verge of offering crypto custody services for its ETF clients, focusing on Bitcoin and Ether, following a key regulatory shift from the United States Securities and Exchange Commission (SEC). The SEC has eased its stance, allowing BNY to bypass previously contentious crypto accounting guidelines.

Earlier this year, the SEC’s Office of the Chief Accountant reviewed the situation and determined that BNY could be exempt from complying with the SEC loosens its grip on the Staff Accounting Bulletin (SAB) 121, according to Bloomberg.

SAB 121 mandates that firms holding client crypto assets must report them as liabilities in their financial statements. Since its introduction in April 2022, SAB 121 is a source of endless controversy within the US crypto industry.

The SEC hinted that other financial institutions might receive a similar exemption. A spokesperson told Bloomberg:

“Certain broker dealers and custody banks have sufficiently shown the SEC staff that their circumstances differ from those outlined in SAB 121.” The agency added that, as long as clients receive the same protections for their crypto assets as they do for traditional custody arrangements, the balance sheet treatment will follow suit.

Though BNY has secured the green light from the SEC, the bank must still seek approval from other regulatory bodies before launching its crypto custody services. BNY stated to Bloomberg:

“BNY has been, and will continue to be, in discussions with its banking regulators to ensure it can offer crypto custody services to its ETP clients on a large scale.”

The introduction of SAB 121 took many by surprise and led to misunderstandings about the financial stability of companies like Coinbase, which integrated the accounting rules in their Q1 2022 financial report, sparking false concerns about the company’s financial health.

Political involvement soon followed, with lawmakers expressing frustration with what they called “regulation disguised as staff guidance” in letters to SEC Chair Gary Gensler in mid-2022. Pro-crypto Senator Cynthia Lummis urged the Government Accountability Office (GAO) to review the guidance. By October 2023, the GAO concluded that SAB 121 fell under the Congressional Review Act, requiring it to be submitted to Congress for potential disapproval.

In February, several prominent financial associations—such as the Bank Policy Institute and American Bankers Association—collectively urged the SEC to exclude traditional assets recorded on blockchain from SAB 121’s requirements. Despite growing pressure, the SEC stood by its guidance. Although legislation to overturn SAB 121 was passed in May, it faced a setback when US President Joe Biden vetoed the effort in June.

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