(Bloomberg) -- The structure Bank of New York Mellon Corp. is using to offer custody services for digital assets could be used beyond the Bitcoin and Ether exchange-traded funds that the bank is considering, according to US Securities and Exchange Commission Chair Gary Gensler.
Earlier this week, the bank acknowledged that it had presented a plan to the SEC’s Office of Chief Accountant to custody those two assets in a way that would protect customer funds in the event of bank insolvency. The agency provided BNY with a “non-objection” to the plan, a regulatory term that gives comfort to the bank that its structure won’t fall afoul of the agency’s requirement that banks reflect the value of the digital assets they custody on their balance sheet. BNY previously told Bloomberg News that the SEC’s non-objection was specific to the ETF use case.
“Though the actual consultation related to two crypto assets, the structure itself was not dependent on what the crypto was,” Gensler told Bloomberg News on Thursday after he delivered a speech at the Federal Reserve Bank of New York’s annual US Treasury Market Conference. “It didn’t matter what the crypto was.”
The Bitcoin and Ether investment products are the only crypto related ETFs approved so far by US regulators.
A BNY spokesperson didn’t immediately respond to a request for comment.
BNY’s proposed structure includes the use of individual crypto wallets, each of which would have a separate bank account, and would be prohibited from being comingled with bank assets, Gensler said. It’s up to the bank to decide whether to expand the pool of digital asset use cases it’s comfortable custodying, he said.
Gensler credited BNY for doing the “legwork” on how to make sure customer assets would remain theirs, and that they wouldn’t be shunted to the back of the line in the event of a bankruptcy. Thousands of crypto traders have found themselves in that position as the result of the blow ups in recent years of Celsius Network, FTX, Voyager Digital and other digital asset platforms.
“This bank, or any other bank if they came in with the same structure would get the same non-object,” he said.
Banks also need the approval of their prudential regulators to custody digital assets.
Gensler noted that several banks and brokers have been in discussions about potential digital asset custody structures that would segregate customer assets from the banks and thus could also avoid the requirements of “Staff Accounting Bulletin 121,” the measure laying out the agency’s balance sheet requirements for crypto. The industry has vocally complained about SAB 121, one of its litany of complaints regarding the Gensler administration’s aggressive posture toward the digital asset industry. President Joe Biden vetoed Congress’s efforts to overturn the SAB 121 earlier this year.
Safeguarding digital assets for clients is a lucrative business, with many non-bank providers charging 10 times more for the service compared to costs for more traditional assets. By one estimate, the crypto custody market is worth approximately $300 million now and is growing by about 30% yearly.
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