National Banks May Provide Cryptocurrency Custody Services for Customers, OCC Says

A national bank may provide cryptocurrency custody services on behalf of customers, including by holding the unique cryptographic keys associated with cryptocurrency, Jonathan V. Gould, senior deputy comptroller and chief counsel for Office of the Comptroller of the Currency (OCC), said in a letter issued in late July. The letter also reaffirmed the OCC’s position that national banks may provide permissible banking services to any lawful business they choose, including cryptocurrency businesses, as long as they effectively manage the risks and comply with applicable law.

Gould explains there are several reasons why “there is a growing demand for safe places,

such as banks,16 to hold unique cryptographic keys associated with cryptocurrencies on behalf of customers and to provide related custody services.” Three of such reasons are:

  • “First, because the underlying keys to a unit of cryptocurrency are essentially irreplaceable if lost[;] owners may lose access to their cryptocurrencies as a result of misplacing their keys, resulting in significant losses of value.
  • “Second, banks may offer more secure storage services compared to existing options.
  • “Third, some investment advisers may wish to manage cryptocurrencies on behalf of customers and may wish to utilize national banks as custodians for the managed assets.”

Providing cryptocurrency custody services, however, would differ from other custody activities. Since there is no physical “instrument,” a bank that is “holding” digital currencies on behalf of a customer is actually taking possession of the cryptographic access keys to that unit of cryptocurrency. These keys are held in a “wallet” that protects them from discovery by a third party. Keys can either be stored in “hot” wallets (connected to the internet, which makes them convenient to access but more susceptible to hacking) or “cold” wallets (physical devices that are completely offline, such as paper or hardware wallets that can be stored in a physical vault).

“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 said in the letter. “By providing such services, banks can continue to fulfill the financial intermediation function they have historically played in providing payment, loan and deposit services.”

He added that “safekeeping services are among the most fundamental and basic services provided by banks,” that it is “well-established that national banks may provide custody services to their customers in either a fiduciary or non-fiduciary capacity,” and that “the OCC generally has not prohibited banks from providing custody services for any particular type of asset, as long as the bank has the capability to hold the asset and the assets are not illegal in the jurisdiction where they will be held.”

Therefore, the OCC concluded that “providing custody services for cryptocurrency falls within these longstanding authorities to engage in safekeeping and custody activities.”

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