The Financial institution of New York Mellon’s (BNY Mellon) foray into the digital asset custody enterprise has hit a regulatory hurdle, per American Banker.
It emerged that the Securities and Alternate Fee’s (SEC) Workers Accounting Bulletin 121 (SAB 121) requires custodians of digital property to report these property on their steadiness sheets. This regulatory requirement presents a possible obstacle for banks seeking to scale their digital asset custody enterprise, notably these specializing in belief providers like BNY Mellon.
BNY Mellon launched into its digital asset custody enterprise in October 2022. Nonetheless, the SAB 121 regulatory roadblock was not recognized till after the financial institution had made vital strides towards establishing its crypto custody enterprise.
BNY Mellon’s strategy was treating digital property equally to extra conventional ones, which aren’t recorded on its steadiness sheet.
In its utility to the New York State Division of Monetary Companies, the financial institution acknowledged an intention to assist its Digital Property Custody product by adhering to U.S. Typically Accepted Accounting Rules (GAAP) and Worldwide Monetary Reporting Requirements (IFRS), beneath which digital property held by a custodian usually are not reported on the steadiness sheet with solely related fiat foreign money balances needing reporting.
Nonetheless, the SEC’s place on the matter has despatched ripples throughout the banking trade, doubtlessly deterring different banks wishing to increase into crypto custody, together with JPMorgan and Goldman Sachs, who’ve an curiosity in cryptocurrency developments.
In response to Lee Reiners, a Duke Regulation and the Duke Monetary Economics Middle lecturer, the extra vital impression for banks can be the leverage ratio, as they would want to carry capital in opposition to digital property. This might affect their choices on offering crypto custody providers.
The guts of the competition lies in whether or not crypto property are basically just like conventional ones.
John Sedunov, an affiliate professor of finance at Villanova College within the College of Enterprise, mentioned crypto property current larger technological, operational dangers than conventional property. As an illustration, a stolen or hacked cryptocurrency may very well be irretrievably misplaced, not like most standard property in custody.
Due to this fact, whereas crypto and conventional property could not pose the identical dangers, a legitimate argument exists for treating them in another way.
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