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Banks Emboldened to Offer Cryptocurrency Services Based on New Guidelines

Financial institutions are increasingly interested in providing services related to cryptocurrency transactions. In recent years, cryptocurrencies, such as Bitcoin and Ethereum, have exploded in popularity as an alternative payment system and as an asset class. Cryptocurrencies generally rely on blockchain technology and a series of distributed electronic ledgers that facilitate the exchange of data over a decentralized network of computers. This technology employs digital keys to process a transfer of the underlying virtual currency.

This trend was bolstered when the federal Office of the Comptroller of the Currency (OCC) recently issued a guidance letter for national banks as to the provision of custodial services for cryptocurrency assets. In the letter, the OCC confirmed that national banks may perform safekeeping and custodial services with respect to their customers’ cryptocurrency assets. Typically, holders of cryptocurrencies have relied on third-party exchanges (e.g., Coinbase) to serve as the custodian of their virtual currency assets. Alternatively, some customers have acted as their own custodians using their own hardware. In either scenario, customers holding virtual currency must worry about the threat of hacks and security breaches or simply forgetting or misplacing their digital keys.

Sensing this, many financial institutions have identified an opportunity to provide vital safekeeping and custodial services to the cryptocurrency sector. Banks have long provided safekeeping and custodial services to their customers. In a pre-digital age, this often took the form of the traditional safe deposit box. With the rise of digital assets, banks have sought the flexibility to adapt these core banking services to a changing landscape.

The OCC letter recognizes that the safekeeping services could take the form of “hot” or “cold” digital wallet storage of a customer’s access keys (i.e., either storing access keys online or offline, respectively). The OCC further noted that an institution could offer the same custodial services in connection with a cryptocurrency asset as it could for a traditional asset, including facilitating exchange transactions, settling trades, record keeping, offering tax services and reporting services.

Please contact Bryan M. Mull with any questions concerning this topic.

Bryan M. Mull
410-576-4227 • bmull@gfrlaw.com