BNY Mellon Receives Preferential Treatment from US SEC for Crypto Custody, Sparking Industry Dissent

• BNY Mellon takes a significant leap towards offering custodial services for cryptocurrency ETFs.
• Controversy brews as notable figures in the crypto space like SEC Commissioner Hester Peirce and Caitlin Long speak out against alleged preferential treatment.
• Coinbase, a key player in the crypto custody sector, now faces potential competition from BNY Mellon.

BNY Mellon’s strategic move into crypto custody puts Coinbase on alert, sparking debate over regulatory favoritism and the evolving landscape of digital asset management.

BNY Mellon Authorized to Provide Crypto Custody

BNY Mellon, a leading banking institution, has recently received SEC approval to offer custodial services for both Bitcoin (BTC) and Ethereum (ETH) to ETF issuers. This landmark decision allows BNY Mellon to bypass specific SAB 121 accounting rules, particularly those governing crypto custodians. The approval signals a noteworthy development within the financial sector, as traditional banks begin to embrace digital assets.

Regulatory Discrepancies and Industry Reactions

This development has not gone unnoticed in the crypto industry. SEC Commissioner Hester Peirce and Caitlin Long, CEO of Custodian Bank, have publicly criticized the decision, alleging unfair regulatory treatment. They argue that while entities like BNY Mellon benefit from regulatory leniency, other financial institutions face stringent restrictions on crypto custody. Caitlin Long has been particularly vocal, highlighting the contradictions in the Federal Reserve’s stance on digital asset risk versus its actions.

Implications for Coinbase and the Broader Market

Coinbase, which has largely dominated the crypto custody market amid regulatory crackdowns on other providers like Silvergate Bank, now faces increased competition. BNY Mellon’s entry into the space represents a significant shift. Since early 2023, BNY Mellon has demonstrated considerable interest in the cryptocurrency industry, supporting a substantial portion of Bitcoin and Ether ETFs approved by the SEC. The bank’s move to expand into crypto custody aligns with rising demand and positions it as a formidable competitor in the market.

Perspective from Industry Leaders

During recent discussions, SEC Commissioner Hester Peirce reiterated concerns over the agency’s inconsistent application of SAB 121 regulations. At the same time, BlackRock’s Head of Digital Assets, Robbie Mitchnick, emphasized continuity and adaptation in their custodial practices amidst emerging competition. Mitchnick’s comments underscore the dynamic nature of the crypto industry, where regulatory frameworks and market strategies are continually evolving.

Conclusion

BNY Mellon’s foray into the crypto custody sector marks a significant development with far-reaching implications. While the SEC’s decision to exempt certain regulatory rules for BNY Mellon has sparked debate over preferential treatment, it also introduces heightened competition for established players like Coinbase. As the digital asset space continues to mature, stakeholders must navigate an increasingly complex regulatory landscape, balancing innovation with prudent risk management.