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Recent Developments in Cryptocurrencies

August 27, 2020

Cryptocurrency Custody Services

In a letter released by the Office of the Comptroller of Currency (“OCC”) in July 2020, the Senior Deputy Comptroller & Chief Counsel wrote that a national bank and federal savings associations may provide cryptocurrency custody services on behalf of customers.

The letter marks a major development for both cryptocurrencies and the business of banking. The bank in question proposed to the OCC that they would offer custody services for cryptocurrencies similar to their traditional custodial services.

The OCC considered the following points in coming to their conclusion:

  • National banks have historically provided safekeeping and custody services for physical and electronic assets. Custody can be provided to the national bank’s customers in either a fiduciary or non-fiduciary capacity.
  • Per 12 CFR 7.5002(a), a “national bank may perform, provide, or deliver through electronic means and facilities any activity, function, product, or service that it is otherwise authorized to perform, provide, or deliver.”
  • If the national bank with trust powers conducts custody services for cryptocurrencies in a fiduciary capacity, it would be allowable, as long as it was conducted in compliance with 12 CFR Part 9, and all other applicable laws.

The OCC also clarified that their conclusion would be equally applicable to federal savings associations. The letter further stated that “the services national banks may provide in relation to the cryptocurrency they are holding in custody may include services such as facilitating the customer’s cryptocurrency and fiat currency exchange transactions, transaction settlement, trade execution, record keeping, valuation, tax services, reporting, or other appropriate services.”

Any national bank or federal savings associations that are considering such cryptocurrency custody services should be sure to:

  • Develop and implement sound risk management practices and align those practices with the institution’s business strategy (as in the case of any new activities entered into by the institution).
  • Keep up-to-date with best practices and risks associated with cryptocurrencies (including technical characteristics associated with different cryptocurrencies).
  • Develop internal controls specific to cryptocurrencies, particularly those related to access to digital assets, and safeguarding digital assets in the context of digital custody.
  • Consider changes needed for customer onboarding and due diligence in light of specific cryptocurrency risks.

The full OCC letter can be found here.

NYDFS Greenlist of Virtual Currencies:

In August 2020, the New York Department of Financial Services added ten virtual currencies approved for custody to its greenlist, and eight virtual currencies approved for listing. This announcement follows the recent coin-listing process as explained by the NYDFS. See flowchart below:[1]

Approved Virtual Currencies (as of August 3, 2020)[2]

Coins Approved for Custody 

Binance USD (BUSD)

Bitcoin (BTC)

Bitcoin Cash (BCH)

Ethereum (ETH)

Ethereum Classic

Gemini Dollar (GUSD)

Litecoin (LTC)

Pax Gold (PAXG)

Paxos Standard (PAX)

Ripple (XRP)

Coin Approved for Listing 

Binance USD (BUSD)

Bitcoin (BTC)

Bitcoin Cash (BCH)

Gemini Dollar (GUSD)

Ethereum (ETH)

Litecoin (LTC)

Pax Gold (PAXG)

Paxos Standard (PAX)

 

[1] https://www.dfs.ny.gov/apps_and_licensing/virtual_currency_businesses/coin_listing_process

[2] https://www.dfs.ny.gov/apps_and_licensing/virtual_currency_businesses/virtual_currencies

 

 




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