The Senate of the US state of Virginia has introduced, and approved an amendment to, a new Bill that allows traditional banks operating in Virginia to provide crypto currency custody services. The Bill awaits assent from the Governor of Virginia Glenn Youngkin to become law.
Banks seeking to offer crypto custody will need to meet three key requirements:
The implementation of effective risk management systems;
Possession of adequate insurance coverage; and
Establishment of an oversight program that considers risks associated with cryptocurrencies sought to be held.
Part C of the Bill states:
Acting in a fiduciary capacity... the bank shall require customers to transfer their virtual currencies to the control of the bank by creating new private keys to be held by the bank.
This is a little confusing as the keys should be generated by the bank in a secure fashion and should never be exposed or there is a risk of theft. The Bill also requires that if the bank does not act as a fiduciary then customer "retains direct control over the keys associated with their virtual currency" and the bank only acts as a bailee. This would lead to a situation where either the bank or customer could transact using the keys and it would be near impossible from the outside to tell the difference.
Other US States have previously passed legislation enabling the use of crypto currency for payment of taxes and for other purposes, indicating a growing mainstream path of adoption.
While there is no planned legislation akin to the Bill contemplated Australian, ASIC's recent Report 705 sets out a sensible criteria for crypto custody similar to the Virginian Bill. However APRA would need to be involved, as well as ASIC, if Australia wished to enable banks to custody crypto-assets.
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