OCC Said National Banks Could Custody Cryptocurrency

The Office of the Comptroller of the Currency published Interpretive Letter 1170 on July 22, 2020, concluding that national banks and federal savings associations could provide cryptocurrency custody services for customers, including by holding the unique cryptographic keys associated with digital assets.

The decision was consequential because it removed a specific legal ambiguity for federally chartered banks at the point where cryptocurrency ownership meets institutional infrastructure. It did not require any bank to enter the business, approve a particular custody product or guarantee customer assets. It established that custody itself could fit within powers banks already possessed, provided they managed the activity safely and complied with applicable law.

From safe-deposit boxes to private keys

The OCC treated cryptocurrency custody as a technological extension of traditional safekeeping rather than an entirely new banking power. Banks had long stored physical valuables and electronic records, and the agency had previously recognized encryption-key escrow as an electronic counterpart to physical safekeeping.

Cryptocurrency changed what possession meant. In most arrangements described by the letter, the bank would not physically possess an asset. It would control, or safeguard a copy of, the cryptographic key that permits control and transfer of the customer’s cryptocurrency. The OCC called that function the electronic corollary of traditional safekeeping.

The conclusion covered both non-fiduciary and fiduciary custody. A bank acting in a fiduciary capacity remained subject to the relevant trust rules, state law and the instrument creating the relationship. The letter also said its use of “cryptocurrency” included digital assets not broadly used as currencies, while warning that an asset treated as a security could trigger separate securities-law requirements.

Custody could extend beyond storage

The letter contemplated several operating models. A customer might retain a private-key copy while a bank stored another, preserving the customer’s direct control. Alternatively, assets could move under bank control and new private keys could be held for the customer, leaving the customer without direct control. The OCC did not prescribe one architecture.

It also said custody could include related functions such as transaction settlement, trade execution, recordkeeping, valuation, reporting and facilitating exchanges between cryptocurrency and fiat currency. A bank could engage a sub-custodian, but the bank was expected to ensure that the provider maintained appropriate internal controls.

That breadth mattered institutionally. Custody is the base layer for services that investment advisers, funds and other clients may need before they can use a bank for digital assets. The July 22 letter gave national banks and federal thrifts a federal-law basis to evaluate that business alongside state-chartered crypto custodians. It did not resolve every rule applicable to advisers, broker-dealers, exchanges or the assets themselves.

Permission came with supervisory conditions

Interpretive Letter 1170 was not an unconditional green light. The OCC said new custody activities had to align with a bank’s business plan and sound risk management. It identified policies, procedures, management information systems, dual controls, segregation of duties, accounting controls and asset separation as relevant safeguards.

The agency also expected account-level risk review, anti-money-laundering compliance, information-security controls designed to mitigate hacking, theft and fraud, and procedures tailored to the technical characteristics of each cryptocurrency. Custody agreements could need to address protocol forks. Banks were told to consult OCC supervisors as appropriate, and the activity would remain subject to ordinary supervision.

What was not established on July 22

The letter confirmed legal authority; it did not show that any named bank had launched a service, quantify customer demand or measure assets ready to move into bank custody. No defensible event-day price effect is asserted here. A cryptocurrency trades continuously across venues, and the cited records do not supply a standardized instrument, venue, currency pair and UTC window capable of isolating the letter’s market impact.

The narrow event-day conclusion is nevertheless substantial: on July 22, 2020, the principal federal regulator of national banks formally placed cryptocurrency key custody inside the established business of banking, while leaving implementation, customer uptake and the handling of technology-specific risks to supervised institutions.