The Bank of New York Mellon Corp. (BNY Mellon) is exploring a custody structure for digital assets that could have applications beyond Bitcoin and Ether exchange-traded funds (ETFs), according to Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC).
Earlier this week, BNY Mellon confirmed it had submitted a plan to the SEC’s Office of Chief Accountant for custodying Bitcoin and Ether, designed to protect customer funds in the event of bank insolvency. The SEC granted the bank a “non-objection” to this plan, a term indicating that the agency is satisfied that the proposed structure complies with regulations requiring banks to reflect the value of the digital assets they hold on their balance sheets. BNY Mellon has previously informed Bloomberg News that this non-objection specifically pertains to ETF applications.
“The structure itself was not dependent on what the crypto was,” Gensler remarked to Bloomberg News following his speech at the Federal Reserve Bank of New York’s annual U.S. Treasury Market Conference. “It didn’t matter what the crypto was.”
Currently, Bitcoin and Ether are the only cryptocurrency-related ETFs approved by U.S. regulators.
A spokesperson for BNY did not respond immediately to requests for comment. Gensler explained that BNY’s proposed structure involves individual crypto wallets, each linked to a separate bank account, preventing any commingling with bank assets. The decision to broaden the scope of digital assets for custody lies with the bank.
Gensler commended BNY Mellon for ensuring customer assets remain secure, especially in light of the experiences of thousands of crypto traders affected by the recent collapses of platforms such as Celsius Network, FTX, and Voyager Digital. “This bank, or any other bank if they came in with the same structure, would get the same non-object,” he added.
Banks must also receive approval from their prudential regulators to custody digital assets. Gensler indicated that several banks and brokers are in discussions about custody structures that would segregate customer assets from bank holdings, potentially bypassing the requirements set by “Staff Accounting Bulletin 121” (SAB 121), which outlines how crypto assets must be treated on balance sheets. The crypto industry has criticized SAB 121, and earlier this year, President Joe Biden vetoed Congressional attempts to repeal it.
Safeguarding digital assets is a lucrative venture, with non-bank providers reportedly charging up to ten times more for custody services compared to traditional assets. The crypto custody market is estimated to be worth around $300 million and is growing at a rate of approximately 30% annually.
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