Comprehensive Guide to Crypto Asset Custody: Insights from U.S. Banking Regulators
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Introduction to U.S. Crypto Custody Guidelines
The leading banking regulators in the United States—the Office of the Comptroller of the Currency (OCC), the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC)—have collectively issued guidance for banks engaged in the custody of cryptocurrency assets. While these guidelines do not establish new regulations, they emphasize the importance of banks employing existing risk management strategies and compliance frameworks when managing digital assets for their clients.
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Key Standards for Managing Crypto Asset Custody
Fox journalist Eleanor Terret reports that this guidance targets banking institutions that are either currently offering or contemplating the provision of safekeeping services for cryptocurrencies. The term “safekeeping” is defined as the responsibility of holding an asset for a customer’s benefit. Banks may also provide additional custody services, but the primary focus remains on the safekeeping of crypto assets.
The regulators recognize the complexities of digital asset custody and stress the significance of adhering to existing laws and regulations, which govern fiduciary and non-fiduciary roles. Banks providing these services must comply with applicable legal standards, including those specified in Title 12 of the Code of Federal Regulations (CFR), which mandates managing crypto assets similarly to traditional ones.
Timur Suleimenov, head of the National Bank of Kazakhstan, highlighted the allure of potentially high returns from cryptocurrencies but cautioned about their inherent volatility. Regulators urge banks to perform comprehensive risk assessments prior to venturing into the crypto safekeeping arena.
Additionally, the guidance underscores the need for banks to have knowledgeable personnel capable of managing the complexities of crypto asset custody. This includes formulating contingency plans to tackle unforeseen challenges that may emerge during service provision.
Recommendations for Audit Programs and Compliance
Beyond operational risks, legal and compliance factors are crucial. Banking entities must adhere to existing regulations, including the Bank Secrecy Act (BSA), anti-money laundering (AML) laws, and the Office of Foreign Assets Control (OFAC) requirements.
The guidance also stresses the importance of transparent customer agreements that clarify the responsibilities of both the bank and its clients. These agreements should address specific issues pertinent to digital asset safekeeping, such as governance, asset holding methods, and the role of any sub-custodians involved in the process.
As banks explore the possibility of offering crypto-asset safekeeping services, they must also consider the advantages and risks of utilizing third-party sub-custodians. Due diligence is vital in selecting these partners, as banks remain accountable for the actions performed by any sub-custodian they engage.
To ensure effective oversight, banks are encouraged to establish comprehensive audit programs to evaluate their crypto-asset safekeeping operations. These audits should encompass various aspects, including cryptographic key management, customer asset transfers, and the overall efficacy of the bank’s internal controls.
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