June 29, 2022

Volume XII, Number 180

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June 28, 2022

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June 27, 2022

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Virginia Approves Bill Allowing Banks to Offer Cryptocurrency Custody Services

On March 3, Virginia passed a new bill (HB 263) permitting banks in the Commonwealth to provide its customers with crypto custody services “so long as the bank has adequate protocols in place to effectively manage risks and comply with applicable laws.”  Prior to offering custody services, a bank will need to carefully examine the risks involved in offering the service, which include meeting the following three requirements referenced in the bill:

  1. Implementing effective risk management systems and controls to measure, monitor, and control relevant risks associated with custody of digital assets;

  2. Implementing insurance coverage for such services; and

  3. Maintaining a service provider oversight program to address risks to service provider relationships.

The bill explains that Virginia banks may offer this service either in a fiduciary or non-fiduciary capacity.

  • Acting in a fiduciary capacity, the bank will require customers to transfer their virtual currencies to the control of the bank by creating new private keys to be held by the bank and the bank will have authority to manage virtual currency assets as it would any other type of asset held in such capacity

  • As a nonfiduciary, the bank will act as a bailee, taking possession of the customer’s asset for safekeeping while legal title remains with the customer, meaning that the customer retains direct control over the keys associated with their virtual currency.

Virginia Governor, Glenn Youngkin, is expected to sign the bill into law in the coming weeks.

Putting it Into Practice:  At the federal level, the OCC has already instituted measures allowing nationally-chartered banks to offer crypto custody services.  In spite of the OCC rules, most banks have not carried out crypto custody services, in part, because without federal legislation, most banks are unwilling to take risks in the highly-regulated banking sector where even though they be in compliance with OCC rules, they may be in violation of other federal laws.  While taking this wait-and-see approach, banks may not have to look any further than the recent executive order from the Biden administration outlining its cryptocurrency policy that may lay the foundation for future banking policy impacting crypto (we discussed the executive order in a recent Consumer Finance and FinTech blog post here).

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 69
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About this Author

Associate

Gabriel is an Associate on the Telecom team and the Co-Lead Associate on the Blockchain and Digital Assets team in the firm’s Washington, D.C. office. He is a Blockchain Law Professional as Certified by the Blockchain Council.

At Sheppard Mullin, Gabriel assists the Telecom team in all aspects of communications law and regulation including, satellites, spectrum, 5G implementation, media companies, and new technologies. He assists the Blockchain and Digital Assets team in legal issues relating to the use of blockchain technology, social media, internet, video games, online gambling,...

202-747-2194
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
Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
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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
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