National Banks and Federal Associations Can Soon Custody Crypto as U.S. bank Regulator Grants Permission

The U.S. Federal Reserve, the world’s largest bank by assets, has opened the door to keeping cryptocurrencies in its bank accounts on behalf of the customers.

The official note, released Wednesday, said such custodian services represent a “significant increase” in traditional banking activities related to custodian services and apply to all federal savings banks and national savings banks with assets of more than $1 million.

The OCC’s move represents a significant step forward for the U.S. banking industry in the digital currency sector, at a time when the OCC is seeking to better promote digital activities in such institutions, including in areas such as digital assets and blockchain.

In a statement, the Attorney General’s Office of the U.S. Department of Justice released a letter outlining the policy shift. Although not mentioned by name, the letter cites “requests from the U.S. Treasury Department and the Federal Reserve Bank of New York regarding the provision of cryptocurrency depository services to customers.”

The physical ownership of an instrument is an integral part of the digital currency legal framework, known as the blockchain or distributed ledger, which holds digital currencies. However, to transfer the rights to a particular unit of digital currency, the right to these specific units of digital currencies must be moved by physical transfer. Therefore, “the bank holding the digital currency on behalf of the customer directly participates in the value of that digital asset, not just the bank’s property,” the letter said.

The letter cites existing OCC guidelines that state banks may hold a variety of assets for depositors, including assets that are unique and difficult to value. Depositary activities often include the transfer of assets from one bank to another, such as the electronic transfer of assets. Usually, the custody activity consists of the processing of transactions, the management of funds and the collection of information on assets transferred electronically.

The note also suggested that the institutions wishing to provide crypto-custody services should develop and implement these activities following the OCC guidelines set out in its recent guidance on the use of crypto in the U.S. banking system and should adjust to UBS’s regulatory framework for issuing financial instruments and services.

Also, a bank must establish a “clear and uniform” set of rules for depositary arrangements. These include, according to the OCC, safeguarding assets in custody, preparing reliable financial reports and complying with laws and regulations.

In summary, the OCC wants banks that pursue this branch of business to understand that they are in an authority position when it comes to the specific handling and hedging of cryptocurrencies. Acting U.S. Attorney General Eric Holder, who took office last week in response to the resignation of OCC Director Thomas O’Toole, celebrated the release of the guidelines and said,

“This is to ensure that all banks can meet today’s financial services needs of their customers,” Brooks said in a statement, “ensuring that banks, in partnership with the Federal Reserve, can better address the needs and challenges of the digital currency market.” The statement makes clear that banks can continue to fulfill their obligation to protect their most valuable assets, including cryptocurrencies, for today’s tens of millions of Americans.