The OCC confirmed that national banks and federal savings associations may provide cryptocurrency and digital asset custody services, including by holding "unique cryptographic keys."

In an interpretive letter, the OCC reaffirms that national banks may provide all permissible banking services to cryptocurrency businesses "so long as they effectively manage the risks and comply with applicable law[s]," including anti-money laundering requirements.

The OCC emphasized that the proposed custodial services represented traditional banking activity being applied to a new type of asset. Further, the OCC stated that it recognized the need for banks to leverage new technology to provide traditional services to their customers so that "banks can continue to fulfill the financial intermediation function they have historically played in providing payment, loan and deposit services."

While the OCC did not prescribe specific requirements that would be applicable to the provision of digital asset custody, it emphasized the need for sound "policies, procedures, internal controls, and management information systems governing custody services" (see page 10 for a list of the required internal compliance procedures).

Commentary

This is a significant letter.

First, by formalizing the ability of fully regulated national banks to serve as custodians of assets that have been to date hard to ensure control over, the OCC makes it much easier for institutional investors and businesses to feel comfortable in holding (and thus purchasing in the first place) assets that are represented in digital form.

Second, the OCC is sending a clear message to national banks: embrace technology or be left behind. The bank regulator was positively enthusiastic about digital assets, noting the significant market capitalization of bitcoin and the fact that bitcoin "is now accepted as payment by thousands of merchants worldwide."

Third, the OCC's action potentially represents a fundamental change in the culture of bitcoin and digital assets generally. That is, the original cultural perception was that distributed ledger technology might displace banks and other financial intermediaries. But that turned out not to be so easily done for reasons ranging from the risks of self-custody to governmental concerns as to AML. By this action, it now becomes the case that the game in digital assets is likely not the replacement of financial intermediaries but rather the replacement of the payment and information systems used by those intermediaries.

Primary Sources

  1. OCC Press Release: Federally Chartered Banks and Thrifts May Provide Custody Services for Crypto Assets
  2. OCC Interpretive Letter 1170

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