Blog Post 06.15.20
Alert
Alert
08.10.20
The OCC’s Explanation
The OCC explains that national banks are permitted to provide cryptocurrency custody services under the authority they have to perform custody services for physical assets (e.g., the safekeeping of valuable paper and rare coins). This authority encompasses conducting such services via electronic means. Furthermore, the OCC notes how it generally does not prohibit a bank from providing custody services for particular types of assets, as long as the bank has the capability to hold the asset and the asset is not illegal in the jurisdiction where it will be held. Finally, the letter highlights the OCC’s long-standing recognition of electronic safekeeping activities since the banking industry entered the digital age.
Methods of Providing Cryptocurrency Custody Services
The OCC’s letter lists three methods a bank can utilize to provide cryptocurrency custody services depending on the bank’s expertise, risk appetite, and business model. First, a bank can take possession of the cryptographic access keys to a customer’s cryptocurrency. Second, a bank may offer to store copies of the customer’s cryptographic access keys while the customer retains their own copy. Third, a bank may permit a customer to transfer his or her cryptocurrencies directly to the control of the bank, thereby generating new cryptographic access keys which would be held by the institution on behalf of the customer. A bank acting as a fiduciary must ensure its custody model complies with requirements stipulated in 12 C.F.R. 9.13 and 12 C.F.R. 150.230-250.
Fiduciary and non-fiduciary services
According to the OCC, national banks acting as non-fiduciary cryptocurrency custodians are authorized to do so as part of the incidental powers related to the business of banking. See, e.g., Conditional Approval 267 (agency services such as custody that do not involve fiduciary powers are performed by banks as part of their incidental powers); OCC Interpretive Letter 1078 (April 19, 2007) (authority of national banks to engage in custody activities derives from general business of banking, and from incidental powers language in 12 U.S.C. § 24 (Seventh)). The OCC also stated that national banks are authorized to act as fiduciary cryptocurrency custodians from their authority to manage other assets they hold as fiduciaries. See 12 U.S.C. § 92(a). If a national bank with trust powers conducts cryptocurrency custody services in a fiduciary capacity, it must comply with 12 C.F.R. Part 8, state law, and other applicable laws. Additionally, federal saving associations are granted these same capacities if they comply with 12 C.F.R. Part 150.
Recommended Procedures
The letter ends by noting procedures national banks should implement to engage in cryptocurrency custody services. In sum, a national bank should: