The Bank of New York Mellon (BNY) is taking steps towards offering custody services for Bitcoin and Ether held by its exchange-traded fund (ETF) clients. This comes after the United States Securities and Exchange Commission (SEC) granted the bank an exemption from following controversial crypto accounting guidelines.
The SEC’s Office of the Chief Accountant conducted a review earlier this year and concluded that BNY did not need to comply with the SEC’s Staff Accounting Bulletin (SAB) 121, as reported by Bloomberg. SAB 121 requires companies to classify client crypto assets as liabilities in their accounting, and it has been a contentious issue in the US crypto industry since its introduction in April 2022.
The SEC’s decision to grant BNY this exemption may extend to other financial institutions. In a statement to Bloomberg, an SEC spokesperson said that as long as these institutions provide the same level of protection for clients’ crypto assets as they do for traditional custody arrangements, their balance sheet treatment will be the same.
However, BNY will still need approval from other regulators in addition to the SEC before it can offer custody services for cryptocurrencies. The bank acknowledged this requirement in its statement to Bloomberg.
The introduction of SAB 121 has sparked significant controversy. Coinbase’s Q1 2022 financial report led to incorrect speculation about the company’s financial health after it incorporated the new accounting rules. Politicians also joined the debate in June 2022 by writing a letter of complaint to SEC Chair Gary Gensler, arguing that the guidance was excessive regulation disguised as staff guidance.
In response to the growing opposition, the Government Accountability Office examined the guidance and determined in October 2023 that SAB 121 falls under the Congressional Review Act. This act states that agency rules must be submitted to Congress for review and potential disapproval.
In February, a coalition consisting of the Bank Policy Institute, American Bankers Association, Financial Services Forum, and Securities Industry and Financial Markets Association sent a letter to Gensler, requesting an exemption for traditional assets recorded on the blockchain from the requirements of SAB 121.
Despite the mounting pressure, the SEC stood firm on its guidance, and legislation was introduced in May to overturn it. However, US President Joe Biden vetoed the legislation the following month.
Source: