On 22 July, the Workplace of the Comptroller of the Forex (OCC) issued an interpretive letter confirming that nationwide banks and federal financial savings associations (collectively, banks) can provide custodial companies for cryptoassets as a result of “offering cryptocurrency custody companies…is a contemporary type of conventional financial institution actions associated to custody companies.”
The OCC has long-recognized the “permissibility of digital safekeeping actions” akin to holding encryption keys for digital certificates in escrow and offering safe web-based storage of paperwork that comprise personally identifiable data or commerce secrets and techniques. Offering custody companies for cryptoassets, the OCC concludes, is analogous to those actions and thus falls inside banks’ long-recognized authority to supply digital safekeeping actions.
The OCC additionally explains that it usually doesn’t prohibit custody of particular property; quite the opposite, banks might custody property if they’ve the capability to take action, together with hard-to-value property. This permits banks to supply custodial companies for a variety of cryptoassets, notably utility cash and different cryptoassets whose worth will not be tied to an extrinsic supply.
Pursuant to this interpretation, banks might, amongst different companies, maintain a prospects’ non-public keys, facilitate fiat and cryptocurrency trade transactions, present transaction settlements, keep data, and supply tax companies. Banks fascinated with offering such companies might contract with sub-custodians, supplied they adhere to present steerage relating to oversight of third-party service suppliers.
To-date, many banks have kept away from providing custodial companies for cryptoassets, and state-chartered belief corporations have helped fill this hole. Some states, akin to Wyoming, have enacted new legal guidelines permitting particular objective depository establishments to custody such property. The uncertainty as as to if banks may present such companies was one consider banks’ reticence to have interaction. A number of the “distinctive points” the OCC recognized within the letter (“akin to (for instance) the therapy of ‘forks’ or splits within the code underlying the cryptocurrency being held”) might have been an element as nicely.
With the regulatory authority query answered, banks might start to focus extra on the technical and danger components of safekeeping companies for cryptoassets. Some banks may go with present crypto-friendly belief corporations as sub-custodians, which might be crucial as banks develop their capabilities. Because the OCC warned, “totally different cryptocurrencies might have totally different technical traits and should subsequently require danger administration procedures particular to that individual forex.” Furthermore, banks might start creating relationships with main, regulated cryptoasset exchanges to develop their capabilities and to gauge shopper curiosity. It additionally stays to be seen how the letter will have an effect on some state-chartered banks, which, below state wild card or parity statutes, usually might have interaction in the identical actions as nationwide banks.