On July 22, 2020, the Office of the Comptroller of the Currency (“OCC”) issued an interpretive letter confirming that national banks and savings associations may provide cryptocurrency custody and related services.  National banks have long provided safekeeping and custody services for a wide variety of customer assets, including both physical objects and electronic assets, and the extension of these services to cryptocurrency is a modern form of these traditional activities.

In the letter, the OCC acknowledged that the provision of custody services could involve a range of services, from safekeeping to non-fiduciary and fiduciary custody.  Depending on the type of custody service, banks will be able to provide a range of ancillary services, including “facilitating cryptocurrency and fiat currency exchange transactions, transaction settlement, trade execution, record keeping, valuation, tax services, reporting and other appropriate services.” 

The OCC stresses that banks will need to apply effective risk management practices, as required under law, to any potential cryptocurrency custody services, and have adequate systems in place to identify, measure, monitor, and control the risks of its custody services.  In particular, the OCC states that banks should include the following systems:

  • policies, procedures, internal controls, and management information systems governing custody services;
  • effective internal controls include safeguarding assets under custody, producing reliable financial reports, and complying with laws and regulations;
  • dual controls, segregation of duties, and accounting controls; and
  • accounting records and internal controls that ensure that assets of each custody account are kept separate from the assets of the custodian and maintained under joint control to ensure that that an asset is not lost, destroyed or misappropriated by internal or external parties.

The OCC suggests that banks should also consider special controls for settlement of transactions, physical access controls, and security servicing.  These controls would need to be tailored in the context of digital custody.

Finally, the OCC states the banks will need to address the risks associated with an individual account prior to acceptance through a sound know-your-customer and due diligence process. In summary, the OCC’s letter is an overdue measure and tacitly recognizes that cryptocurrency is not an irregular and unusual asset.  This development effectively expands the number of types of entities that provide cryptocurrency custody, allowing national banks to compete with state-chartered entities.

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Patrick Dennien is an associate in the Firm’s Washington, DC office. He practices in white collar crime and corporate investigations, sanction systems of international organizations, money laundering risk and AML regulation, cryptocurrency risk and regulation, and corporate compliance programs. Prior to joining the Firm, Patrick worked for the World Bank’s anti-corruption arm, where he assessed the compliance programs of multinational companies, and advised on the development and implementation of effective compliance programs.