Bank Regulators Issue Statement on Crypto Custody
Three major federal bank regulatory agencies—the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, and the Office of the Comptroller of the Currency—released a joint statement warning banks about the risks associated with holding cryptocurrency assets. This statement does not introduce new regulations but signals a significant shift in federal engagement on this issue.
Existing Rules and Guidelines
The statement reiterates that existing risk management principles apply to the safekeeping of cryptocurrency assets. It reminds banks of their obligation to comply with applicable laws and regulations, including those related to anti-money laundering (AML) and the Bank Secrecy Act (BSA). Additionally, it clarifies that banks may provide safekeeping services for crypto assets, whether in a fiduciary or non-fiduciary capacity.
Legal and Compliance Risks
The statement highlights the legal and compliance risks associated with cryptocurrency assets. It calls on institutions to carefully assess operational, legal, and technological risks before launching any crypto-related services. The regulators also stress the importance of employee training, ensuring that all personnel involved in crypto asset safekeeping have adequate knowledge and understanding of the associated risks and requirements.
The Legacy of SAB 121 on Crypto Custody
The statement represents the final rollback of a previously implemented rule, Staff Accounting Bulletin (SAB) 121, which limited financial institutions from holding cryptocurrencies directly. This requirement had mandated banks maintaining custody of crypto to record those holdings on their own balance sheets.
Bipartisan Effort to Overturn SAB 121
Despite the restriction, banks continued offering crypto custody services. By mid-2024, U.S. banks collectively held nearly $16 billion in digital assets. The issue gained further prominence following the introduction of exchange-traded funds (ETFs) early in 2024. Since SAB 121 deterred banks from holding bitcoin directly, those assets were concentrated in a small number of institutions. Overturning the rule opens the door for more banks and other organizations to hold digital assets directly.
SAB 122: Crypto Risk Assessment
Following the rescission of SAB 121, the Securities and Exchange Commission (SEC) published SAB 122. This document stated that institutions should assess the risk of loss associated with crypto custody and record that amount as a contingent liability on their balance sheet.
