National Banks And Federal Savings Associations To Provide Crypto Custodial Services

National and state-run banks can now offer crypto-related custodial services to their customer, a letter from the United States’ Office of the Comptroller of the Currency (OCC) states. The news means banks can now be able to store and manage both hot and cold wallet information on behalf of customers.

“As the financial markets become increasingly technological, there will likely be increasing need for banks and other service providers to leverage new technology and innovative ways to provide additional services on behalf of customers.”, OCC’s interpretative letter adds.

The OCC recognizes the importance of cryptocurrencies, and Bitcoin in particular, as cryptos are accepted as a legitimate payment method and store of value worldwide. The OOC also considers that banks may be a better alternative for storing private keys for both hot and cold wallets.

However, the OCC explains that banks would rather “store the cryptographic keys, rather than obtaining possession over cryptocurrencies.” The OCC’s regulations authorize national banks to provide such escrow services, as they are otherwise accredited to perform, provide, or deliver custodial services for traditional assets, like fiat and precious metals.

The letter is a giant step towards crypto adoption because prior to the permission, only native crypto exchanges could offer custodial services. However, those services must be licensed to hold funds on behalf of their clients. The current situation opens the doors to regulated financial institutions to join the crypto ecosystem, which improves the access to cryptocurrencies and their market.

The biggest improvement, however, lies in the banks’ ability to provide permissible banking solutions to any business, as long as it’s lawful, which includes crypto-related companies.

The Office of the Comptroller of the Currency (OCC) is now managed by ex-Coinbase exec Brian Brooks, who jointed the currency regulator at the beginning of 2020. Brook’s pro-crypto stance resulted in him filing several crypto-related propositions, one of which implies a national payment charter. The charter would eliminate the state-by-state licensing for payment services provision by startups.

Meanwhile, JPMorgan ran ahead of the regulatory approval and offered several banking services to crypto companies like Gemini and Coinbase. However, major banks are still skeptical about cryptocurrencies, as banks consider crypto startups and exchanges as compliance and reputational risk if an unwanted event occurs.