Bank of New York Mellon Expands into Digital Asset Custody Beyond ETFs, Gaining SEC Approval
Bank of New York Mellon (BNY Mellon), the largest custodian bank in the U.S., has received regulatory approval to offer digital asset custody services beyond exchange-traded funds (ETFs). This marks a significant step forward, expanding the bank’s reach into cryptocurrency asset management. Initially authorized to provide custody for Bitcoin and Ethereum ETFs, the bank now has the green light from SEC Chair Gary Gensler to extend its services beyond ETFs, applying to a wider range of digital assets.
Gensler emphasized that although the initial approval was focused on Bitcoin and Ethereum, the new structure allows for the custody of any digital asset. BNY Mellon’s regulatory breakthrough is further solidified by a court order, which permits the bank to hold spot Bitcoin and Ethereum ETFs without making them public commitments. Additionally, the bank has been exempted from certain accounting obstacles under Staff Accounting Bulletin (SAB) 121.
BNY Mellon’s Innovative Custody Solution Amid Regulatory Challenges
In response to regulatory hurdles, BNY Mellon has introduced a new structure aimed at alleviating legal restrictions on financial institutions holding digital assets. The bank’s solution includes creating segregated accounts for individual cryptocurrency wallets, ensuring that clients’ digital assets remain separate from the bank’s funds. This safeguards investors’ assets in the event of bankruptcy, a critical feature highlighted during the collapse of major financial entities in the crypto space.
Gensler praised BNY Mellon’s efforts to protect user assets, calling the structure well-considered and noting that other banks entering the crypto custody market could replicate this model and potentially receive the same regulatory exemptions.
The Lucrative Future of Cryptocurrency Custody
One of the key factors driving banks to enter the digital asset custody space is the sector’s profitability. Reports suggest that fees for digital asset custodianship are up to ten times higher than those charged by traditional institutions. Analysts predict the custody market could become a multi-billion-dollar industry within a few years, with annual growth expected to reach 30%. Consequently, banks are eager to tap into the opportunities presented by this emerging sector.
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However, the challenges posed by SAB 121 remain, as efforts to overturn the law have been blocked by President Joe Biden’s veto. Despite this, market speculation suggests that the regulation could be revisited by the next administration following the upcoming November elections.
By navigating these complex regulatory environments and leading the charge in crypto custody, BNY Mellon is positioning itself as a major player in the future of digital asset management.
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