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Victory for Crypto Enthusiasts as U.S. Banking Regulator Permits Crypto Custody at Federally Chartered Banks


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The Office of the Comptroller of the Currency (OCC) has granted permission for federally chartered banks to provide custodial services for cryptocurrency. The move is an attempt to modernize banking in the U.S., specifying that “national banks may escrow encryption keys used in connection with digital certificates [because]. . . the key escrow service is a functional equivalent to physical safekeeping.”

The OCC letter released on July 22, 2020, recognizes that custodial services for cryptocurrency will evidently be different from fiat money. Since digital currencies are solely on the blockchain or a distributed ledger, the OCC acknowledges that there is no physical custody of the currency. Hence, the bank providing custody services will take possession of the encryption key of the cryptocurrency.

This statement is seen as a victory for many, as guidance now exists to assure banks that they can pursue this new form of custodial services. The lack of regulatory clarification was often a hurdle for many companies attempting to expand their cryptocurrency businesses or those attempting to find institutions to hold cryptocurrencies.

Nonetheless, challenges still continue to exist. While custodial services are welcomed, the letter does not include any information on potential insurance coverage to cryptocurrency. Further, since the nature of cryptocurrency is generally deemed “high risk” by banks, the compliance and legal guardrails procedures that must be in place are still being developed. The OCC letter states, “Banks determine the levels and types of risk that they will assume,” demonstrating that it is still up to the banks to create compliance policies.

While the letter does not have the same effect as a regulation, it is a positive reinforcement for banks to follow and use as guidance when implementing cryptocurrency procedures within policies. It can also serve as a roadmap for regulators in the development of legislation with respect to cryptocurrencies.

“From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today,” Brian P. Brooks, Acting Comptroller of the Currency stated on Wednesday, “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.”

These changes are necessary as technology and financial markets continue to develop. Banks must adapt in order to provide traditional services to these new, innovative technologies. We welcome these changes here at Bolimini International, as we see the continued growth of cryptocurrency within the U.S. being welcomed, allowing banks to continue their roles as providers of loans, custodians, deposit services, and payments.

If you have any crypto-related questions, we have your answers! Do not hesitate – reach out to us now!

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