Federal Reserve Clears Path for Bank Crypto Custody

• Banks must meet strict compliance standards and assume full liability when they hold cryptocurrency keys for customers. 

• Financial institutions can use third-party custody vendors but remain responsible for any failures or security breaches. 

• The new guidance removes barriers and allows banks to offer crypto custody services under clear regulatory frameworks.

The Federal Reserve, FDIC, and Office of the Comptroller of the Currency have released joint guidance establishing clear standards for banks offering cryptocurrency custody services. The statement targets financial institutions currently providing or considering cryptocurrency safekeeping services for customers.

The regulatory guidance emphasizes that banks must maintain existing compliance requirements and risk management protocols when handling cryptocurrency assets. Banks can operate as fiduciary managers with legal duties or as non-fiduciary secure storage providers, depending on service agreements and regulatory frameworks.

Banks Face Full Liability for Cryptographic Key Management

Under the new guidelines, banks holding cryptographic keys assume complete liability and responsibility for digital assets. Regulators mandate that banks maintain exclusive control over private keys, preventing customer access to ensure what officials term “true control” standards.

The guidance identifies critical risk factors, including cryptographic key loss, cybersecurity threats, market volatility, and anti-money laundering compliance obligations. Banks must establish robust internal controls and stay current with cryptocurrency custody industry developments.

Financial institutions must evaluate their technical capabilities and compliance readiness before entering crypto custody markets. Regulators expect banks to implement strong operational frameworks, hire staff with cryptocurrency expertise, and deploy updated technologies to address evolving digital asset risks.

Third-Party Vendor Oversight Requirements

Banks utilizing third-party cryptocurrency custody vendors remain fully responsible for service failures. Regulators stress the importance of thorough due diligence processes, particularly regarding private key storage practices and vendor security protocols.

Service agreements must clearly define procedures for compromised assets and vendor insolvency scenarios. Banks must ensure third-party partners meet the same stringent security standards as internal operations.

The guidance reinforces existing anti-money laundering, counter-terrorism financing, and OFAC regulations for cryptocurrency custody services. Banks must verify customer identities and monitor suspicious transaction patterns, presenting additional challenges in blockchain environments where identity transparency varies.

Legal clarity remains paramount for cryptocurrency custody management. Banks must address governance issues, including on-chain voting, blockchain forks, and airdrop distributions on behalf of clients. Institutions should establish clear protocols for wallet management across all storage types and smart contract interactions.

Regulators mandate separate audit programs covering cryptocurrency custody controls, cryptographic key management, and personnel competency. Banks lacking internal expertise may engage qualified third-party auditors to ensure compliance with standards.

This development follows the Federal Reserve’s recent decision to eliminate reputational risk factors that previously prevented banks from offering cryptocurrency custody services. The regulatory shift signals growing institutional acceptance of digital asset custody as a legitimate banking service.