- SEC receives bipartisan letter requesting reconsideration of the SAB 121
- After, BNY Mellon “variance” exempting it from the SEC’s SAB 121 rule
- BNY noted that this doesn’t address all of the barriers that SAB 121 creates
- However, it enables options for holding crypto assets to move forward
- Also, several unnamed businesses have received similar “variance” exemptions
BNY Mellon, the largest custodian bank in the world, announced that “variance” exempting it from the SAB 121 rule from the SEC, which has received a bipartisan critical letter from US lawmakers yesterday.
This case is a direct demonstration of one of the key concerns from the letter, where the SEC’s approach to SAB 121 is very evasive and they grant exemptions for some companies.
At least for BNY, it means that the SEC will not object to the bank’s decision that crypto assets for its regulated exchange-traded product (ETPs) clients should not be recognized on BNY’s balance sheet.
This relieves BNY of a lot of overhead costs that are high enough to meet SAB 121 requirements, which has been criticized by many crypto companies and crypto industry leaders.
It also makes it much easier for BNY to roll out custody services for Bitcoin and Ether ETPs.
Additional Details on SAB 121 Exemptions
This Tuesday, BNY announced that the SEC’s Office of the Chief Accountant (OCA) will not apply SAB 121 to the bank.
The bank’s representatives clarified that they already maintain 80% SEC-approved Bitcoin and Ethereum cryptoassets (ETPs) in their fund services business. It follows that providing custody is a natural next step in the bank’s strategic plans for digital assets.
That said, this exception is limited to one case, namely custody for registered ETP crypto assets, which remains an unresolved issue:
“It does not solve the issue of SAB 121 effectively restricting bank custody of digital assets. We plan to continue discussing additional use cases with the SEC.”
BNY thus became one of another list of unnamed banks and financial institutions whose request for a SAB 121 exemption was granted.
This dramatically reduces the cost of holding crypto assets and will allow large players like BNY to invest more to expand services while making it easier for smaller players to enter crypto storage.
Key leaders have already railed positively on this news, such as Chris Land:
“BNY wants to get more involved in the cryptocurrency storage business. They had some issues with SAB 121, and the SEC apparently gave them some sort of variance from SAB 121 to move forward.”
Also, Michael Saylor endorsed the news and mentioned that there are credible rumors that one or more major US banks will soon be able to store Bitcoin.
Conclusion
As noted by BNY, the problem is not completely solved because SAB 121 requiring collateralization of assets is becoming an insurmountable barrier for a large number of businesses.
However, while not disclosing all possible formats for storing crypto-assets, this exemption allows many potential participants to move forward.
We consistently see business on one side and the government on the other, forcing the SEC to rethink its position that inhibits economic and service development.
And it is working to some extent, as the case of Ripple and today’s news also shows. Let’s keep a close eye on the further initiatives of each side and how they affect the crypto sector.
