BNY Mellon has reportedly obtained an exemption from the SEC's SAB 121, allowing the bank to move forward with its institutional crypto custody business. The move underscores growing institutional interest in digital assets.

In regards to its institutional crypto custody activities, the biggest US custodian bank, BNY Mellon, allegedly received a waiver from the SEC's SAB 121 accounting standards.

BNY Mellon Receives SEC Waiver for Crypto Custody

According to Coingape's reporting, during a federal update on Monday, Chris Land, counsel for US Senator Cynthia Lummis (R-WY), announced that BNY Mellon has been approved to provide institutional custody for digital assets by the SEC and maybe other regulatory bodies.

Land asserts that:

“BNY is looking to get more involved in the crypto custody business. They had some problems with Staff Accounting Bulletin (SAB) 121, and the SEC has apparently given them some kind of variance from SAB 121 to move forward.”

SAB 121 Exemption Clears Path for Institutional Adoption

Paul Munter, chief accountant of the SEC, made the surprising announcement during a speech that the agency has given SAB 121 conditional exemptions. He was cited as adding that a bank and multiple brokerage firms were granted such exemptions, along with other entities, for employing blockchain technology to monitor and transfer traditional financial assets; however, he did not provide any names.

According to SAB 121, entities that hold cryptocurrency must record it as an asset on their balance sheet and also record a liability equal to the cryptocurrency's fair value. Many people think this is too much work for the banking and cryptocurrency businesses, and they're right.

BNY Mellon Works with Regulators to Ensure Client Protections

Munter stated that the SEC had determined that SAB 121 did not necessarily apply to all financial organizations that utilized blockchain technology.

As part of the terms of the exemption, the bank was required to cooperate with a state regulator to ensure that customers would get their crypto assets back in the event of the bank's insolvency. Additionally, the bank could only engage in institutional custody-related activities that had sufficient controls to mitigate risk.

SEC and Federal Reserve Oversee Institutional Crypto Developments

Whatever the case may be, the US Securities and Exchange Commission has asked the court for more time to finish discovery in the US SEC v. Coinbase case, which involves SAB 121. The government body is trying to get the case's fact discovery deadline pushed back to a date in February after the election.

As a federally-level entity, the Federal Reserve and the New York Department of Financial Services oversee BNY Mellon. In testimony given by Chris Land, general counsel to U.S. Senator Cynthia Lummis, the bank was allegedly involved in an exemption from the SEC's SAB 121 regulations.

Exemption Sparks Broader Interest from Financial Institutions

The bank holding company of BNY Mellon is regulated by the Federal Reserve, which leads Land to believe that the Fed would have been engaged in sanctioning BNY's venture into digital asset custody. The necessity of a formal non-objection letter from the Fed remains unclear, though, because two supervisory letters from 2022 and 2023, SR 22-6 and SR 23-7, fail to explicitly state that prior approval is necessary to engage in crypto custody.

Market data shows that major players possess more BTC, which adds to the interesting trend of institutional interest in Bitcoin continuing to expand in Q2 of this year. Mercado Libre and BNY Mellon are just two of many well-known organizations that have revealed their Bitcoin holdings in their most recent 13F filings, adding to the market's excitement.

Potential for Future Expansion in the Crypto Space

It is still assumed that state-chartered banks, such as BNY, should adhere to the same regulations as national banks, which includes obtaining a non-objection letter. State banks are required to follow the same regulations as national banks, according to Federal Reserve policy statement 9-13 *. Such a letter is necessary for national banks to engage in crypto custody activities before they can be approved by the Office of the Comptroller of the Currency.

Land responded to a question from Wyoming's Select Committee on Blockchain Chair Cyrus Western about whether BNY needs a BitLicense to trade digital assets by saying the bank might argue that state law preempts federal banking laws.

Industry Experts Speculate on Crypto Adoption

Galaxy Digital CEO Michael Novogratz speculated that this might pave the way for other conventional banks to enter the cryptocurrency market, and although the Federal Reserve, the SEC, and BNY all chose not to comment on the details, rumors have it that BNY is the bank exempt from SAB 121. In a recent interview with Yahoo Finance, BNY CEO Robin Vince discussed the steps the bank is taking to position itself to participate in the rapidly growing digital asset industry.