U.S. Regulators Clarify Crypto Custody Rules for Banks

U.S. banking regulators have issued a joint statement clarifying the rules around cryptocurrency safekeeping, or custody, by banking organizations. The Federal Reserve Board, the Office of the Comptroller of Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) emphasized that banks must adhere to specific guidelines if they plan to hold crypto for their customers. The statement underscores the importance of robust risk management frameworks to mitigate the dangers associated with crypto custody.

The regulators highlighted that banks offering crypto safekeeping services must comply with federal regulations under 12 CFR 9 or 150, as well as relevant state laws and agreements. This compliance is crucial for banks acting in a fiduciary capacity, where they have legal authority to act on behalf of the customer, such as in the roles of a trustee, will executor, or investment advisor. For non-fiduciary safekeeping, banks must still implement strong systems to protect against hacking, system failures, and the loss of critical information like private keys.

The statement also noted the evolving nature of the crypto-asset market, urging banks to stay updated and adapt their risk management strategies accordingly. The regulators emphasized that any bank contemplating crypto safekeeping services must plan ahead, regularly review their safety measures, and be prepared to address issues promptly. This proactive approach is essential to ensure that crypto custody services are provided in a safe and sound manner, similar to other banking services.

In recent months, the regulators have issued several updates to guide banks in the crypto space. In May, the OCC confirmed that banks are permitted to buy and sell crypto for themselves. Additionally, the FDIC revised its stance, stating that banks do not need prior approval to engage in crypto activities. These updates reflect the regulators' efforts to provide clear guidance and foster a secure environment for banks venturing into the crypto market.

The joint statement by the Federal Reserve, OCC, and FDIC aims to help banks protect assets and build trust in the crypto space. By clarifying the rules around crypto custody, the regulators are paving the way for financial institutions to engage in crypto-related activities with confidence, while also ensuring that they are well-prepared to manage the associated risks. The update comes amid a broader change in Washington’s approach to crypto since Donald Trump returned to the White House. Over the past few months, federal agencies have released a series of clarifications around how banks can engage with crypto markets.

The Federal Reserve officially scrapped “reputational risk” from its supervision framework for banks, a move that could ease pressure on lenders to steer clear of crypto clients and other industries viewed as controversial. The Fed said it would replace the vague reputational risk label with more specific financial risk categories to provide clearer guidance on how banks are assessed. The move mirrors recent moves by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC).

While the change won’t stop banks from considering reputational risks in their own internal processes, it removes the concept as a formal part of the Fed’s examination procedures — something that has been widely criticized by crypto firms who say they’ve been unfairly “debanked.” The Fed also withdrew its 2022 supervisory letter that required banks to pre-notify regulators about crypto-related activities, along with separate 2023 guidance on stablecoin services. Going forward, banks’ crypto activities will be monitored through the standard supervisory process rather than through additional reporting.

Crypto advocates have also been landing key roles. Last week, the Senate confirmed Jonathan Gould—former chief legal officer at blockchain firm Bitfury—as the new head of the OCC. Gould previously served as senior deputy comptroller and chief counsel at the same agency. The appointment of Gould, who has a background in blockchain technology, signals a shift in the regulatory approach towards crypto, indicating a more supportive stance from the OCC. This move is part of a broader effort by the U.S. government to integrate crypto into the traditional financial system, ensuring that banks can offer these services safely and securely.