August 15, 2022

Volume XII, Number 227

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August 12, 2022

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Louisiana Approves Virtual Custody Services and Proposes Virtual Currency Business Licensing Rules

Recently, the Louisiana lawmakers and regulators have taken steps to legalize operations in the state involving virtual currencies. On June 15, the Louisiana governor signed a bill that, effective August 1, 2022, will allow financial institutions and trust companies to provide virtual currency custody services to their customers as long as they satisfy certain requirements on risk-management and compliance. On June 20, the Louisiana Office of Financial Institutions (OFI) published proposed rules on licensing and regulation of virtual currency businesses in the state pursuant to the Louisiana Virtual Currency Business Act, which went into effect on August 1, 2020.

Virtual Currency Custody Services:

In order to lawfully provide virtual currency custody services under the new Louisiana law, the entity must be a financial institution or trust company, and allows such entities to use third-party providers. The new law defines “financial institution” as a federally insured depository institution chartered under the laws of any state or federal law. The law allows such entities to lawfully conduct custody services involving virtual currencies if it follows certain “self-monitoring” requirements, such as: (1) implementing an effective risk management system and controls to measure and monitor the relevant risks related to digital assets such as virtual currency; (2) maintaining adequate insurance coverage; and (3) maintaining an oversight program to monitor any third-party service providers it uses to provide the custody services.

Virtual Currency Business Licensing:

The OFI’s new regulations establish several important rules related to operating as a virtual currency business in the state, such as: (i) reciprocity of licensure with other states, (ii) licensee examinations, (iii) surety bond requirements, and (iv) prohibitions on unfair, deceptive, or fraudulent practices. It also establishes the enforcement authority of the OFI in regulating compliance with the law, and provides an avenue for companies already operating virtual currency businesses within the state. If an entity is already engaged in virtual currency business activity in the state, it can continue operating legally within the state if it seeks licensure or registration with the state within 90 days of the effective date of the regulation.

Putting It Into Practice: Louisiana is the latest state to permit virtual currency custody services (we discussed a similar provision in other states in a blog post here.) While the OCC has already instituted measures allowing nationally chartered banks to offer virtual currency custody services under federal law, banks have shown an unwillingness to operate in the space without the certainty of federal legislation. The passage of the Louisiana laws and regulations, however, provide virtual currency businesses an avenue to seek some certainty under state law. If operating within Louisiana, virtual currency business should make sure they are in compliance with the new laws and regulations.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 202
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
Associate

Pouneh Almasi is an associate in the Intellectual Property Practice Group in the firm's San Francisco office.  

Areas of Practice

Pouneh’s practice focuses on intellectual property litigation with an emphasis on copyright and trademark issues.  She is also a member of the firm’s Blockchain Technology & Digital Currency Team.

During law school, Pouneh worked as a judicial extern to the Honorable Jacqueline Scott Corley at the Northern District of California in San Francisco...

415-774-3103
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