The Bank of New York Mellon (BNY) is moving toward providing custody services for its exchange-traded fund (ETF) clients’ Bitcoin and Ether after the United States Securities and Exchange Commission (SEC) gave it a pass on observing controversial crypto accounting guidelines.
The SEC’s Office of the Chief Accountant conducted a review earlier this year and concluded that the bank did not need to adhere to the SEC’s Staff Accounting Bulletin (SAB) 121, Bloomberg reported.
SAB 121 requires companies safeguarding client crypto assets to list them as liabilities in their accounting. It has been a thorn in the side of the US crypto industry since its introduction in April 2022.
The SEC loosens its grip
Other financial institutions may receive the same break, the SEC hinted. A spokesman told Bloomberg:
“Certain broker dealers and custody banks have sufficiently demonstrated to SEC staff that their fact patterns are different from those described in SAB 121.”
“As long as their customers receive the same protection for the safeguarding of crypto assets as they do in custody arrangements, their balance sheet treatment is also the same as custody arrangements,” the agency continued.
BNY would need the authorization of other regulators in addition to the SEC before it could begin offering custody services. It told Bloomberg:
“BNY has engaged, and will continue to engage, its banking regulators to offer custody services to crypto ETP clients at scale.” Source: Financial Services GOP
SAB 121 is a source of endless controversy
The inconvenient SAB 121 caught the world unprepared. Coinbase’s Q1 2022 financial report led to false speculation that the company was unsound after it incorporated the new accounting.
In June 2022, politicians joined the fray for the first of many times by writing to SEC Chair Gary Gensler complaining of “regulation disguised as staff guidance.”
The Government Accountability Office examined the guidance at the urging of pro-crypto Senator Cynthia. In October 2023, it determined that SAB 121 was subject to the Congressional Review Act, which requires agency rules to be submitted to Congress with a procedure for disapproval.
A coalition of the Bank Policy Institute, American Bankers Association, Financial Services Forum and Securities Industry and Financial Markets Association sent a letter to Gensler in February asking that traditional assets recorded on blockchain be exempted from the requirements of SAB 121.
Despite the pressure, the SEC held tight to the guidance, and legislation was passed to overturn the guidance in May. US President Joe Biden vetoed the legislation the following month.
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