After less than two months in government service, former Coinbase chief legal officer Brian Brooks came through for the cryptocurrency industry in a big way.
On July 22, the U.S. Treasury Department’s Acting Comptroller of the Currency published a letter clarifying that U.S. banks and federal savings associations are allowed to provide custody services for cryptocurrencies.
In that letter, the Office of the Comptroller of the Currency “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,” according to a release. “Crypto custody services may extend beyond passively holding ‘keys.’”
The OCC had provided banks and thrifts with the authority to custody digital assets for safekeeping as long ago as 1998, but cryptocurrencies’ legality has been murky at best in the banking world.
“From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today,” said Brooks. “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.”
The announcement “signifies a real acceleration in the embrace of the digital asset class and the value of digital currency solutions,” said Robert Cooper, CEO of cryptocurrency custodian Digivault.
“Not only does this represent seismic development for crypto holders in the U.S., but echoes a broader trend regarding the acceptance of digital assets amongst global regulators.”Robert Cooper, Digivault
“Indeed, virtually all central banks are actively looking in some way at creating their own digital currencies,” or CBDCs, he added.
Pointing to the banking industry’s need to “leverage new technology and innovative ways to serve their customers’ needs,” an OCC release accompanying the letter said providing crypto custody will allow banks to “continue to fulfill the financial intermediation function they have historically played in providing payment, lending, and deposit services.”
Interpretive Letter No. 1170 is framed as an answer to a bank’s request for clarification on this issue.
More broadly, it “reaffirms the OCC’s position that national banks may provide permissible banking services to any lawful business they choose, including cryptocurrency businesses, so long as they effectively manage the risks and comply with applicable law.”
The letter goes on to describe cryptocurrency custody as “a permissible form of a traditional banking activity.”
This also applies to cryptocurrencies held by banks in a fiduciary capacity—such as a trustee, executor of a will, or an investment advisor.
Unsurprisingly, the letter goes on to warn that a custodial bank’s responsibilities would include effective anti-money laundering controls. It also notes that, as different cryptocurrencies have different characteristics, risk management procedures would have to be specific to a particular currency token.
Finally, it offers to assist banks in setting up these services, recommending that banks “consult with OCC supervisors as appropriate prior to engaging in cryptocurrency custody.”
Updated at 9:45 a.m. on July 23 to add comments by Robert Cooper.