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- National banks and federal savings associations may buy and sell crypto assets held in custody at a customer’s request.
- They may outsource custody and execution services to third parties with proper risk controls.
- These services may include transaction execution, valuation, recordkeeping, and tax reporting.
The Office of the Comptroller of the Currency (OCC) has clarified the scope of crypto services that national banks and federal savings associations can offer. In a recent letter, the OCC reaffirmed earlier guidance.
It affirmed banks’ capabilities for the provision of crypto custody and execution services on behalf of customers. This action strengthens the banks’ mandate for the sale and purchase of assets held in custody as crypto assets. These transactions have to be consistent with customer instructions.
Banks can also hire third parties to deal with custody-related services. A third-party outsourcing is acceptable on specific terms, provided the third party is run effectively under risk management guidelines.
Banks should have internal procedures that guarantee that the third party has robust controls. These controls should be able to withstand misuse or exposure to threats on customer assets. The OCC stressed that there should be adherence to law and bank standards for safety.
OCC Bridges Banks and Crypto Firms
OCC’s new position relies on Interpretive Letter 1183. It is based on earlier guidance provided by Interpretive Letter 1170. It restates that cryptocurrency custody is a new way of carrying on traditional asset custody. Customer assets have long been dealt with by banks, and that is where their inclusion of digital assets fits in.
Sub-custodian institutions like technology companies or crypto service providers are now able to join with banks. These companies may perform services like trade execution, recordkeeping, and reporting for taxes. But the bank is still obligated to supervise the third party’s performance.
This technique allows banks to be more flexible and protects the consumer at the same time. It also provides for further partnership opportunities for banks with crypto-infrastructure players. The goal is to give safe and compliant access to the growing market for digital assets.
Merging Crypto with Mainstream Banking
Notwithstanding such regulatory clarity, banks have to comply with strict regulation. When they serve a fiduciary purpose, they have to comply with certain regulations under 12 C.F.R. part 9 or 150. These parts detail fiduciary duties and obligations banks have toward clients when they serve a fiduciary purpose.
Any institution dealing with crypto custody has to be able to operate soundly and within the law. There have to be risk controls, particularly where third parties are engaged. Regulatory compliance is not a choice.
The move tightens the regulation of traditional banks’ involvement with the world of crypto assets. It also provides a transparent roadmap for the integration of cryptocurrency services with mainstream finance under close regulation.
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