BNY Mellon Expands Crypto Services with SEC Approval

BNY Mellon, one of the oldest and largest banks in the US, has received a non-objection from the Securities and Exchange Commission (SEC) to expand its crypto custody services beyond Bitcoin and Ethereum exchange-traded funds (ETFs). This decision is a significant step for traditional finance entering the digital asset space, offering new opportunities for institutional investors.

The SEC’s non-objection isn’t a formal approval but indicates that BNY Mellon’s crypto custody structure complies with existing regulations, allowing the bank to move forward without additional permissions. According to SEC Chair Gary Gensler, this model isn’t limited to just Bitcoin and Ethereum but could also apply to other digital assets. He emphasized that the structure is flexible enough to support different crypto assets, making it a versatile solution for future expansions.

BNY Mellon’s custody framework centers on keeping customer assets segregated, ensuring each client’s digital assets are stored in separate crypto wallets linked to individual bank accounts. This separation protects client funds in case of bank insolvency, a critical feature following high-profile crypto collapses like Celsius and FTX. This focus on asset protection and security could restore trust among institutional investors wary of potential risks in the crypto market.

The bank had initially announced its readiness to offer digital asset custody services in 2022, but the rollout was delayed by the introduction of SEC’s Staff Accounting Bulletin 121 (SAB 121). The new rule required banks to report digital assets on their balance sheets, complicating traditional banks’ ability to offer such services. However, the recent non-objection exempts BNY Mellon from SAB 121 requirements for crypto ETF clients, allowing them to proceed without facing these obstacles. This change streamlines operations and could pave the way for broader adoption.

Bill Hughes, Senior Counsel at Consensys, believes this move reflects a shift in regulatory stance. He noted that it could encourage more traditional institutions to enter the crypto market, boosting competition and enhancing safety for investors. If more banks follow BNY Mellon’s lead, it could reshape the crypto custody landscape by making it safer and more accessible.

With over $50 trillion in assets under management as of June 2024, BNY Mellon’s entry into the broader crypto custody space could set a precedent for other major financial players. The bank already supports about 80% of SEC-approved Bitcoin and Ethereum ETFs through its existing services, highlighting its potential to dominate the institutional crypto custody market.

In essence, the SEC’s decision signals a changing regulatory environment. As traditional finance giants like BNY Mellon gain regulatory green lights, institutional interest in digital assets may grow, making crypto a more viable asset class for established investors. This could lead to increased confidence and participation in the digital asset sector, ultimately transforming how traditional financial firms engage with cryptocurrencies.