US Banks Receive New Crypto Custody Guidance from Federal Regulators

The Federal Reserve, FDIC, and Office of the Comptroller of the Currency have jointly issued comprehensive guidance on how US banks should approach cryptocurrency custody services. This regulatory framework targets banks already involved or considering involvement in holding crypto assets for customers.

Strict Standards Required for Crypto Custody Services

US banks must comply with current compliance requirements and risk management practices when protecting digital assets. The regulatory emphasis focuses on safekeeping, which involves storing cryptocurrency custody on behalf of customers.

According to the joint statement, banks can offer crypto custody services in two ways. They can serve as trusted managers with legal duties in a fiduciary role, or function as secure storage providers without management responsibility in a non-fiduciary role. The specific approach depends on service agreements and regulatory requirements.

Banks Face Full Liability for Cryptographic Key Storage

When banks hold cryptographic keys, they assume complete liability and responsibility. Regulators emphasize that banks must ensure exclusive key access, preventing even customers from accessing the keys. This represents what regulators define as the benchmark for "true control."

Key risks include cryptographic key loss, cybersecurity breaches, market volatility, and anti-money laundering obligations. Banks must build proper internal controls and stay updated on crypto custody industry developments.

Technical Capacity and Compliance Readiness Essential

Banks must assess their technical capacity and compliance readiness before entering crypto custody safekeeping. Institutions need strong operational frameworks, staff with cryptocurrency expertise, and updated technologies to handle evolving digital asset risks.

Third-Party Custody Vendors Remain Bank Responsibility

Banks can utilize third-party crypto custody vendors, but remain responsible for any vendor failures. Regulators stress that banks should conduct thorough due diligence on vendors, particularly regarding private key storage capabilities.

Agreements must clearly outline procedures when assets become compromised and vendors face insolvency. Banks cannot transfer their ultimate responsibility to third-party providers.

Anti-Money Laundering and Compliance Requirements

Banks must follow anti-money laundering (AML), counter-terrorism financing (CFT), and OFAC regulations. Financial institutions must verify customer identities and monitor suspicious transactions. These requirements present additional challenges in blockchain-based contexts where identity transparency may be limited.

Legal Clarity Paramount in Crypto Custody Management

Regulators emphasize the importance of legal clarity in crypto custody management. Corporate agreements may involve on-chain votes, forks, or airdrops on behalf of all parties. Banks must address wallet management concerns regardless of storage type and smart contract usage.

Separate Audit Programs Required

Banks must implement separate audit programs for crypto custody operations. These audits should cover crypto custody safekeeping controls, cryptographic key management, and personnel capabilities. Banks lacking internal expertise can engage third-party auditors.

Regulatory Environment Shifts for Crypto Banking

This guidance follows the Federal Reserve's termination of the reputational risk factor that previously prevented banks from offering crypto custody-related services. The regulatory change signals increased acceptance of cryptocurrency services within traditional banking frameworks.

Key Takeaways for US Banks

Banks entering crypto custody services must prioritize comprehensive risk management, technical expertise, and regulatory compliance. The guidance establishes clear expectations for operational standards while maintaining traditional banking liability principles.

Financial institutions should prepare for enhanced oversight, invest in specialized personnel, and develop robust security protocols. The regulatory framework provides clarity while ensuring consumer protection and financial system stability.

The joint guidance represents a significant step toward mainstream cryptocurrency adoption within the traditional banking sector, establishing clear operational parameters for financial institutions.