BNY Mellon, one of the largest custodian banks globally, is preparing to offer custody services for bitcoin and ether held by exchange-traded product (ETP) clients. According to Bloomberg, the bank secured a review by the Office of the Chief Accountant of the U.S. Securities and Exchange Commission (SEC), which did not object to BNY's determination that the cryptoassets should not be recognized as balance-sheet liabilities. This enables BNY to bypass most restrictions of the SEC's Staff Accounting Bulletin 121 (SAB 121), which generally mandates banks to account for custodied crypto on their balance sheets.
Navigating SAB 121, Focusing on ETP Clients
SAB 121 has been a major hurdle for banks seeking to offer large-scale crypto custody. BNY argued that the rule severely limits their ability to provide such services. By specifically focusing on ETP clients with a differentiated fact pattern, the bank convinced the SEC. An SEC spokesperson stated that certain broker-dealers and custodian banks have demonstrated to SEC staff that their fact patterns are different from those described in SAB 121. This paves the way for BNY Mellon to offer compliant custody services.
Lucrative Market and Existing Footprint
Bank custody fees for digital assets can be up to ten times higher than those for traditional assets, making the business highly profitable. BNY Mellon already supports a significant portion of SEC-approved bitcoin and ether products, including spot ETFs. As of mid-2024, BNY oversaw approximately $50 trillion in assets under custody and administration, cementing its position as a global custodian leader. The bank plans to continue engaging with banking regulators to offer custody services to crypto ETP clients at scale. This move could encourage other major banks to enter the crypto custody space, further bridging the gap between traditional finance and digital assets.