State licensed banks in Texas can now hold cryptocurrencies on behalf of their customers. The Texas Department of Banking issued a notice on June 10, saying that banks must have efficient protocols for effective management of associated risks. Apart from this, they must continue to comply.
According to the notice, state-licensed banks in Texas have provided their clients with safe custody of a large number of assets. To this end, the Texas Department of Banking concluded that the authority to provide crypto custody services already exists under Texas Finance Code §32.001. While the department acknowledges that custody and custody of crypto will vary from traditional assets, it does not believe it will be an issue, provided the aforementioned protocols are implemented.
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With this in mind, the department said banks would have to choose which crypto custody services they offer based on their experience. By giving banks cryptocurrency custody options that they can employ, the department said interested financial institutions could allow users to maintain full control of their cryptocurrency holdings and only take a copy of their wallet’s private keys. Alternatively, banks can have their clients transfer cryptocurrency holdings to their wallet and create new private keys for safe custody.
Prioritize the safety of client funds
According to the Texas Department of Banking, state-licensed banks can offer crypto custody services with fiduciary or non-fiduciary capabilities. By taking a non-fiat approach, banks will hold their clients’ cryptocurrencies and allow clients to maintain legal title to their holdings. In this case, the scope of the banks’ obligations will depend on their agreement with their clients. However, they must ensure the safety of the funds in their care and return them unharmed to clients upon request.
To use a fiat crypto custody approach, banks must have trust powers. Reportedly, this could require banks to amend their bylaws and / or comply with Texas Administrative Code 7 §3.23. By offering custodial services in a fiduciary capacity, banks will have the power to manage cryptocurrencies in the same way that they do with other assets.
In addition to keeping an eye on customers, the advisory warned that banks must conduct due diligence to understand the risks involved in offering crypto custody. For banks that decide to go ahead with offering this service, the notice suggested the implementation of effective risk management systems. With such systems, banks will be in a position to measure, monitor and control a variety of risks associated with crypto custody.
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