As the U.S. financial industry gradually enters the field of cryptocurrency custody, one of the world's largest custodian banks: Bank of New York Mellon (BNY) has been confirmed to be the first to obtain SAB 121 exemption from the U.S. Securities and Exchange Commission (SEC) prescribed bank. This move is regarded as a major breakthrough for banks to enter the cryptocurrency custody business and has attracted widespread attention from the financial community.
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ToggleBNY receives SEC exemption to accelerate the development of crypto custody business
According to information disclosed at a public hearing held in Wyoming on Monday (9/16), BNY received a special exemption from the SEC to not comply with the SAB 121 accounting guidance rule for institutional crypto custody businesses. The rules require entities that choose cryptocurrency custody to include crypto assets on their balance sheets and establish corresponding liabilities, which has been criticized by the industry as being too cumbersome. This SEC exemption has significant implications for other banks looking to enter the crypto custody space.
SEC Confirms Bank’s Exemption from SAB 121 Rules
According to a speech by SEC Chief Accountant Paul Munter, the SEC has exempted some of the requirements of SAB 121 for some eligible entities, including banks, securities firms and companies that use blockchain technology to transfer traditional financial assets. He mentioned that entities such as a bank and several brokerages have been exempted, but did not name the banks specifically. The exemption also addresses how to handle the return of crypto assets to customers in the event of bankruptcy.
Fed has no objection to BNY hosting crypto assets
BNY is located in New York and is regulated by the New York Department of Financial Services (NYDFS) and the Federal Reserve. According to testimony provided at the Wyoming hearing, BNY’s crypto custody activities have received a “non-objection” from the Federal Reserve. However, doubts remain over whether the Fed actually needs to issue such a letter, as the two Fed supervisory letters did not explicitly require explicit approval before engaging in cryptocurrency custody business.
Does BNY need a New York BitLicense?
At the Wyoming hearing, whether BNY needs to apply for a New York State BitLicense was also a focus of discussion. Presumably, BNY may rely on the preemption of federal law to argue that it is not subject to the BitLicense. This means that BNY can conduct cryptocurrency custody operations without being subject to state-level regulation.
Exclusively favoring bankers? unfair regulatory environment
Cyrus Western, chairman of the Wyoming Blockchain Commission, said after the hearing that the exemption granted to BNY by the SEC reflected an intensification of double standards.
Western mentioned that institutions that follow the rules, such as Custodia and Kraken, face serious competitive disadvantages because they have not obtained the Federal Reserve’s Master Account qualification. He believes that the exemption obtained by BNY marginalized these crypto companies from competition and raised questions about fairness.
What is the current status of digital asset custody in the United States?
As more and more institutional investors enter the digital asset market, their demand for secure custody continues to grow. These investors require custody services that meet traditional financial standards, such as cold wallets (offline storage), multi-signature technology, and asset insurance.
Many traditional financial institutions, such as Fidelity, JP Morgan, and State Street, have entered the digital asset custody market to provide digital asset custody solutions for institutions and high-net-worth individuals. The participation of these large financial institutions has enhanced the confidence and legitimacy of the digital asset custody market.
In addition to traditional financial institutions, companies specializing in digital asset custody are also growing rapidly, such as Anchorage, BitGo and Coinbase Custody. Coinbase is the custodian of all Bitcoin and Ethereum spot ETFs.
SAB 121 is relatively unfriendly to those in the native cryptocurrency industry. If they compete with traditional banks, and if traditional banks are exempted, the survival space of crypto industry players may be greatly reduced.
Taiwanese banks can also take custody of virtual assets
In July this year, Peng Jinlong, chairman of the Financial Supervisory Commission, said that the financial industry would be allowed to enter the field of virtual assets to help financial transformation. This includes promoting the tokenization of real world assets and opening up the financial industry to handle virtual asset custody services. Bank Director Zhuang Xiuyuan pointed out that there are two main ways to keep virtual assets:
- One is to store the customer’s private key in a physical safe deposit box
- The second is to use algorithms to store private keys.
This will significantly enhance the trust of virtual asset platforms and open up new business opportunities for the banking industry.
