Fed Watchdogs Warn Banks: Tighten Crypto Safekeeping Controls or Face the Consequences

US regulators are putting traditional finance on notice—your half-baked crypto custody solutions won’t fly anymore.

The Federal Reserve, FDIC, and OCC just dropped new guidance that’ll make Wall Street’s risk managers sweat. Turns out storing digital assets requires more security than your average safe deposit box.

Here’s what’s changing:

The new rules of the game

Banks diving into crypto safekeeping now need bulletproof collateral management, real-time auditing, and cybersecurity that could survive a nation-state attack. The agencies aren’t playing nice with ‘innovative’ workarounds either.

Why this matters now

With $2.3 trillion in crypto assets sloshing around global markets, everyone from JPMorgan to your local credit union wants a piece. But recent exchange collapses proved one thing—institutional-grade custody can’t just be marketing speak.

The guidance comes just as BlackRock and Citigroup expand their crypto vault services. Coincidence? Probably not.

The bottom line

Banks that treat crypto like gold bars in a vault are about to learn a painful (and expensive) lesson. Meanwhile, crypto natives are laughing all the way to their actual secure cold storage solutions.

After all, nothing says ‘financial innovation’ like regulators forcing old-school banks to finally take security seriously.

Banks Can Provide Crypto Custody in Two Forms: Fed Agencies

The trio of agencies stressed that the proper way to custody such assets involves “controlling the cryptographic keys associated with the crypto-asset in a manner that complies with applicable laws and regulations,” a detailed 7-page memo read.

Further, banks can offer crypto custody in two forms: fiduciary and non-fiduciary, they added.

In a fiduciary arrangement, where banks are legally authorized to act on behalf of clients like a trustee, specific federal regulations (12 CFR 9 or 150) must be followed. Additionally, state laws and regulations, and any other applicable legal provisions, are also in place, the statement noted.

For non-fiduciary services, banks are mandated to implement robust protections to safeguard customers’ digital assets. This includes protection against cyber threats, data loss and mismanagement of private keys.

Fed Agencies’ Pivot From Previous Crypto Guidances

US Fed agencies have previously restricted banks from easily engaging with crypto businesses under the Biden administration.

In March, the current crypto-friendly President Donald TRUMP signed a long-awaited crypto order that sets a federal agenda meant to move U.S. digital assets businesses into friendly oversight.

As a result, the FDIC officially removed “reputational risk” as a factor in bank supervision, creating a significant victory for the crypto space.

The agency also issued new guidance that cleared the way for supervised banks in the US to engage in crypto-related activities without seeking prior approval.

The @FDICgov revised its crypto policy, letting banks engage in digital asset services without prior approval. Oversight continues through post-notification reviews. #CryptoRegulation #FDIChttps://t.co/lOsoTfKKtN

The latest statement from the agencies arrives on the first day of the U.S. House of Representatives’ self-described Crypto Week. Starting July 14, the GOP aims to push three key crypto bills this week, including the CLARITY Act, the Anti-CBDC Surveillance State Act, and the Senate’s GENIUS Act.