BNY Mellon to Offer Custody Services for Bitcoin Amidst Regulatory Challenges

• The Bank of New York Mellon Corp. (BNY Mellon) has announced plans to provide custody services for bitcoin and ether held by clients of exchange-traded products (ETPs).
• This decision follows a review by the Office of the Chief Accountant at the Securities and Exchange Commission (SEC), which did not oppose BNY Mellon’s stance on the accounting treatment of these cryptoassets.
• The bank clarified that this ruling specifically applies to its ETP custody clients, bypassing the general mandate of SAB 121, which requires banks to report custodied crypto on their balance sheets.

BNY Mellon Advances in Crypto Custody Services for ETP Clients, Riding on SEC’s Green Light

BNY Mellon’s Strategic Move into Crypto Custody Services

BNY Mellon, one of the oldest and largest financial institutions in the world, has disclosed to Bloomberg its intention to offer custody services for bitcoin and ether held by clients of exchange-traded products (ETPs). The bank’s move comes after a favorable review by the Office of the Chief Accountant at the Securities and Exchange Commission (SEC), which did not object to BNY’s assertion that these cryptoassets should not be recognized as balance-sheet liabilities. This interpretation is pivotal, as the SEC’s Staff Accounting Bulletin 121 (SAB 121) typically mandates that banks account for custodied crypto on their balance sheets.

Regulatory Engagement and Future Plans

BNY Mellon stated its commitment to engaging with banking regulators to facilitate large-scale custody services for crypto ETP clients. This strategic move signifies the bank’s proactive approach to adapting to the evolving regulatory landscape. It reflects BNY Mellon’s objective to expand its crypto offerings while pursuing additional regulatory approvals essential for scaling custody services. This initiative shows the bank’s ambition to position itself as a leading player in the burgeoning digital asset sector.

Market Opportunities and Competitive Advantages

With approximately $50 trillion in assets under custody and administration as of mid-2024, BNY Mellon stands as one of the world’s preeminent custodian banks. This vast experience in asset management positions the bank uniquely to capitalize on the lucrative market of digital asset custody. Currently, banks can levy fees up to tenfold higher for the safeguarding of digital assets compared to traditional ones. BNY Mellon’s existing involvement in the ETP space, particularly with a significant share of SEC-approved bitcoin and ether products, positions it advantageously for the anticipated launch of additional crypto-related ETPs, including spot bitcoin ETFs.

Conclusion

BNY Mellon’s announcement marks a significant step in the financial sector’s integration of digital assets. By navigating regulatory challenges and leveraging its extensive custodian experience, BNY Mellon is set to offer robust custody solutions for crypto ETP clients. This move not only serves the bank’s strategic growth but also signals broader institutional acceptance and adoption of digital assets in the financial industry. As BNY Mellon continues to engage with regulators and expand its crypto service offerings, it paves the way for increased institutional participation in the crypto market.