Cryptocurrency

BNY Mellon’s crypto custody venture runs afoul of SEC rules

Bank of New York Mellon (BNY Mellon)’s foray into the digital asset custody business has hit regulatory hurdles, according to reports. American banker.

The Securities and Exchange Commission (SEC) Staff Accounting Bulletin 121 (SAB 121) has been revealed to require custodians of digital assets to record those assets on their balance sheets. This regulatory requirement poses a potential obstacle for banks looking to expand their digital asset custody business, especially banks that specialize in trust services like BNY Mellon.

BNY Mellon launched its digital asset custody business in October 2022. However, the SAB 121 regulatory hurdles were not identified until the bank made significant strides towards establishing a crypto custody business.

BNY Mellon’s approach has been to treat digital assets like traditional assets that are not recorded on the balance sheet.

In a filing with the New York State Department of Financial Services, the bank announced its intention to support digital asset custody products by complying with U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). . Custodian balances are not reported on the balance sheet, only the relevant fiat currency balances need to be reported.

However, the SEC’s position on the issue will have ripple effects throughout the banking industry, discouraging participation by other banks that want to expand into crypto custody, such as JP Morgan and Goldman Sachs, who are interested in developing cryptocurrencies. there is a possibility.

A more significant impact for banks will be the leverage ratio, as banks need to hold capital against digital assets, according to Duke Law Firm and Duke Center for Financial and Economics Lecturer Lee Reiners. This may affect decisions regarding the provision of cryptocurrency custody services.

At the heart of the controversy is whether crypto assets are fundamentally similar to traditional ones.

John Sedunov, an associate professor of finance at Villanova University’s School of Business, said crypto-assets are more technically and operationally risky than traditional assets. For example, if cryptocurrency is stolen or hacked, it can be irretrievably lost unlike most traditional custodial assets.

So while crypto and traditional assets do not pose the same risks, there are valid arguments for treating them differently.

The article that BNY Mellon’s cryptocurrency custody business violates SEC rules first appeared on CryptoSlate.

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