Reaffirming an Obvious and Correct Conclusion: US National Banks may now officially custody digital assets

The Office of the Comptroller of the Currency (OCC) has recently issued an interpretive letter concluding that its long held position that US national banks may provide custody and safekeeping services extends to the electronic safekeeping of digital assets.

Impact for the industry

This is not hugely surprising news from a legal perspective – whilst the OCC had not previously opined on the question of whether banks can provide custody services for digital assets, as the OCC indicated in the letter, national banks have traditionally had broad authority to custody assets for clients.

However it is big news for the US crypto industry. Having an emphatic, clear guidance that provides certainty on the issue is significant and could result in large banks competing with specialist crypto custody firms in providing crypto custody services.

How the OCC came to its conclusion

The interpretive letter walks through the role that banks can play in custodying cryptocurrency assets.  It explains how holding cryptocurrencies on behalf of customers may differ from other types of custodial roles.  Finally, the OCC considers the history of bank safekeeping activities, tracking its development from the provision of safe deposit boxes to the modern escrowing of encryption keys for digital certificates.

The OCC confirmed its belief that banks are generally more secure than other options and noted that banks are permitted custodians for, among others, US-registered investment advisers acting on behalf of advised clients with respect to digital assets.

On the basis of this history and belief, the OCC concluded that safeguarding activities are “among the most fundamental and basic services provided by banks” and that national banks may therefore custody cryptocurrencies.

Rights of control and transfer

The interpretive letter notes that as a matter of practice, custodial banks would take possession of the “cryptographic access keys,” which affords them the right to control and transfer the corresponding digital assets. The OCC considers that such possession and use of the cryptocurrency would constitute the functional equivalents of the physical safekeeping of a tangible asset.

Impact for banks

In the letter, the OCC advises that banks that custody cryptocurrency should conduct their activities in a safe and sound manner.  Among other things, this requires a national bank to develop and implement adequate policies, procedures, internal controls, and management information systems sufficient to identify, measure, monitor and control the risks of cryptocurrency custody services.

Banks should also ensure that the assets of each custody account are kept separate from the assets of the custodian to protect the asset from access and misuse by internal or external parties.

Finally, the OCC highlights that special audit procedures may be necessary to ensure that a bank’s procedures and systems are appropriate for digital custody. 

Please contact a member of our US Fintech team if you would like specific advice on providing crypto custody services.