WASHINGTON — The U.S. regulator of national banks issued an interpretative letter giving banks the all-clear to hold cryptocurrency assets on behalf of their customers.
The letter, dated Wednesday, clarifies the stance by the Office of the Comptroller of the Currency that bank custody services, which have long been understood to include holding digital assets, can extend to cryptographic keys and other crypto-related assets.
“We conclude a national bank may provide these cryptocurrency custody services on behalf of customers, including by holding the unique cryptographic keys associated with cryptocurrency,” Jonathan Gould, senior deputy comptroller and chief counsel, wrote in the letter, which was addressed to an unnamed bank that had sought the opinion. “This letter also reaffirms the OCC’s position that national banks may provide permissible banking services to any lawful business they choose, including cryptocurrency businesses, so long as they effectively manage the risks and comply with applicable law.”
Gould’s letter does not carry the weight of a regulation, but it could serve as a road map for banks considering offering cryptocurrency services, which have largely been provided by other types of firms.
“From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today,” acting Comptroller of the Currency Brian Brooks, formerly the chief legal officer of the cryptocurrency exchange Coinbase, said in a press release. “This opinion clarifies that banks can continue satisfying their customers’ needs for safeguarding their most valuable assets, which today for tens of millions of Americans includes cryptocurrency.”
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Because cryptocurrency is decentralized and encrypted, an individual’s crypto assets have typically been guarded by a complicated alphanumeric passcode or “key.”
Losing that key can be devastating for cryptocurrency holders. But giving custody of it to a regulated exchange, such as Coinbase, can provide a backstop.
The OCC’s letter argues that custody of a cryptocurrency asset is a necessary regulatory innovation for the banking sector in light of recent technology developments.
“The OCC recognizes that, as the financial markets become increasingly technological, there will likely be increasing need for banks and other service providers to leverage new technology and innovative ways to provide traditional services on behalf of customers,” Gould wrote. “By providing such services, banks can continue to fulfill the financial intermediation function they have historically played in providing payment, loan and deposit services.”
But the OCC also emphasized the ways in which custody services for cryptocurrency could differ from services designed for more traditional assets. For example, if a bank is custodian for a cryptocurrency key, it may not necessarily be holding the actual crypto asset.
The agency also made clear that an institution providing custody services for cryptocurrency assets must practice appropriate risk management.
“As with all other activities performed by national banks” and federal savings associations, “a national bank or FSA that provides cryptocurrency custody services must conduct these activities in a safe and sound manner, including having adequate systems in place to identify, measure, monitor, and control the risks of its custody services,” Gould wrote.
“A custodian’s accounting records and internal controls should ensure that assets of each custody account are kept separate from the assets of the custodian and maintained under joint control to ensure that that an asset is not lost, destroyed or misappropriated by internal or external parties.”