Texas Announces State-Chartered Banks Can Provide Cryptocurrency Custody Services
The Texas Department of Banking has announced that state-chartered banks can provide cryptocurrency custody services. “The Texas Department of Banking believes that the authority to provide these services with respect to virtual currencies already exists,” the banking authority said.
Texas State-Chartered Banks Officially Authorized to Offer Crypto Custody Services
The Texas Department of Banking issued a notice to the banking industry Thursday, stating:
Texas state-chartered banks may provide customers with virtual currency custody services, so long as the bank has adequate protocols in place to effectively manage the risks and comply with applicable law.
“While custody and safekeeping of virtual currencies will necessarily differ from that associated with more traditional assets, the Texas Department of Banking believes that the authority to provide these services with respect to virtual currencies already exists pursuant to Texas Finance Code § 32.001,” the notice clarifies.
The banking authority explained that each bank will choose what crypto custody services to offer based on its own expertise, risk appetite, and business model.
The bank may, for example, allow customers to retain direct control over their own cryptocurrencies and merely store copies of their private keys associated with the coins. Alternatively, the bank may take control of customers’ cryptocurrencies, creating new private keys that it will hold on behalf of customers.
The Texas banking regulator has previously determined that custody services may be provided by a Texas state-chartered bank in either a fiduciary or non-fiduciary capacity. If a bank offers custody services in a fiduciary capacity, it would have the authority to manage customers’ cryptocurrencies as it would any other type of asset held in such capacity.
Before a bank can offer cryptocurrency services, the management must “conduct due diligence and carefully examine the risks involved in offering a new product or service through a methodical risk assessment process,” the regulator continued. If the management and board of directors decide to move forward with the crypto services, “effective risk management systems and controls must be implemented to measure, monitor, and control relevant risks associated with custody of digital assets.”
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