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US federal agencies have issued a joint document outlining the risks banks face when custodying crypto assets, emphasizing compliance and liability concerns.
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The guidance highlights the need for banks to implement robust audit programs and manage third-party custodians carefully to mitigate potential losses.
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According to COINOTAG, “Providing crypto-asset safekeeping services may entail significant resources and attention,” underscoring the complexity of integrating crypto custody into traditional banking.
US regulators detail risks and compliance requirements for banks custodying crypto, signaling a cautious yet evolving regulatory landscape for digital asset services.
Federal Agencies Define Risk Framework for Bank Crypto Custody Services
The recent joint publication by the FDIC, OCC, and Federal Reserve provides a comprehensive framework for banks considering crypto custody services. This document, titled “Crypto-Asset Safekeeping by Banking Organizations,” outlines critical risk factors including operational challenges, legal liabilities, and compliance mandates under the Bank Secrecy Act and Anti-Money Laundering regulations. Banks must demonstrate a thorough understanding of the volatile and complex nature of digital assets, ensuring that risk assessments are continuously updated to reflect evolving market conditions.
Importantly, the agencies emphasize that banks remain fully accountable for the activities of any third-party custodians they engage. This responsibility extends to safeguarding against cyber threats and operational failures that could result in asset loss. The guidance encourages institutions to develop or outsource specialized audit programs that scrutinize key management, transaction controls, and staff expertise to maintain the integrity of crypto custody operations.
Implications of Third-Party Custody and Compliance Obligations
Many banks currently rely on established crypto custodians such as Coinbase, Anchorage, or BNY Mellon to manage digital assets on their behalf. The document explicitly states that banks must maintain oversight and control over these sub-custodians, reinforcing the need for stringent due diligence and continuous monitoring. This approach aims to mitigate risks associated with hacking incidents or operational lapses that could lead to significant financial and reputational damage.
Moreover, the regulatory framework reinforces the necessity for compliance with anti-money laundering (AML) and know-your-customer (KYC) protocols. Banks are urged to integrate these requirements into their crypto custody services to prevent illicit activities and align with federal standards. Failure to do so could expose institutions to regulatory sanctions and undermine trust in their digital asset offerings.