The OCC gave the green signal in an interpretative letter.

On Wednesday, the Office of the Comptroller of the Currency wrote a letter to an unnamed bank clarifying that banks’ custody services can include cryptographic keys and other crypto-related assets. (American Banker)

The interpretation is a huge shot in the arm for the crypto industry because custodianship is currently the preserve of digital specialist organizations operating as a trust under a state license.

With the latest opinion from the OCC, the market for crypto assets custody opens up to banks and other regulated financial entities.

Statement by Acting Comptroller of the Currency

Acting Comptroller of the Currency Brian P Brooks issued a statement on the opinion.

“The OCC has specifically recognized the importance of digital assets and the authority for banks to provide safekeeping for such assets since 1998. In the letter published today, the OCC concludes that providing cryptocurrency custody services, including holding unique cryptographic keys associated with cryptocurrency, is a modern form of traditional bank activities related to custody services. Crypto custody services may extend beyond passively holding “keys.”

“From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today,” Brooks said.

“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.”

Rationale – Use cases for crypto custody

The OCC opinion by Jonathan Gould, senior deputy comptroller and chief counsel, said there is a growing demand for custodial services by banks for crypto assets. It outlined the reasons as follows:

• First, if lost, the underlying keys to a unit of cryptocurrency are essentially irreplaceable. Therefore, owners may lose access to their cryptocurrencies as a result of misplacing their keys. This could result 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 crypto currencies on behalf of customers. Therefore, they may wish to utilize national banks as custodians for the managed assets.

Rationale – digitalization

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

Risk management caution

“As with all other activities performed by national banks and federal savings associations, a national bank or FSA that provides crypto custody services must conduct these activities in a safe and sound manner, including having adequate systems in place to identify, measure, monitor, and control the risks of its custody services,” Gould wrote.

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