Breaking: US Regulators Greenlight Crypto Custody Rules for Banks—Game Changer or Just Red Tape?

Wall Street's about to get a crash course in cold storage. US regulators just dropped the final rulebook letting banks dive into crypto custody—with more fine print than a Goldman Sachs employment contract.

The Custody Playbook Decoded

Banks can now legally hold digital assets for clients, but they'll need to jump through enough compliance hoops to make a DeFi purist shudder. Private keys? Auditable. Insurance? Mandatory. Risk disclosures? You bet.

Why This Isn't Your Grandpa's Safe Deposit Box

Traditional banks face tighter restrictions than crypto-native firms—because nothing says 'innovation' like requiring a federal charter just to store Bitcoin. Meanwhile, Coinbase custody already handles more assets than some regional banks.

Watch for the institutional floodgates to creak open—assuming the compliance departments don't strangle the opportunity in its crib. After all, what's finance without a few layers of bureaucratic irony?

Regulators demand strict internal systems before custody begins

The regulators made clear that safekeeping crypto means having control of the cryptographic keys that give access to those assets, and that control must meet every relevant law and regulation.

Before even launching custody services, banks are expected to assess how these operations fit into their overall risk profile and strategy. They need to know the tech, stay updated on industry practices, and prepare for surprises.

“An effective risk assessment WOULD consider such things as the banking organization’s core financial risks given the strategic direction and business model,” the agencies said in their joint statement.

Every employee, whether sitting in the C-suite or working on IT, must have the training and operational knowledge to run crypto custody services properly. The statement added that all parts of the bank must be able to “establish adequate operational capacity and appropriate controls to conduct the activity in a SAFE and sound manner.” Without this foundation, they’re simply not allowed to offer these services.

The guidelines also require contingency plans. That means having a real plan when systems break or if a crypto custody process fails. This isn’t optional. It must be built into the bank’s setup from day one. The agencies said the entire framework should be flexible enough to adapt to the fast-changing crypto landscape. What works today might not work tomorrow.

Banks can use outside help, but stay fully liable

Banks are allowed to work with third-party companies to handle crypto safekeeping—like using sub-custodians or tech providers. But the statement stressed that banks will still carry all the responsibility. “Subject to the terms and conditions in the customer agreement, a banking organization is responsible for the activities performed by the sub-custodian,” the regulators said.

That responsibility covers everything, from which crypto assets the bank supports to how the sub-custodian’s tech works. Even if the third party is doing most of the work, the bank must do due diligence ahead of time.

That means checking how keys are created, stored, and deleted, and confirming that the sub-custodian uses strong safeguards. Banks are also expected to look at what would happen to customer assets if the sub-custodian goes bankrupt or suffers operational problems.

Regulators also addressed another common setup: when a bank handles custody in-house but still uses third-party technology. Whether it’s software, hardware, or anything in between, banks are expected to evaluate the risks. 

That includes deciding whether it’s safer to build their own systems or rely on someone else’s tools. The statement said, “Effective risk management… will generally include weighing the risks of purchasing third-party software or hardware versus maintaining such software or hardware as a service.”

Auditing also made the list of requirements. The agencies said that banks must create audit programs specifically for their crypto custody operations. That includes reviewing key generation, storage, and deletion processes, verifying transfer controls, and checking that IT systems meet security standards. These audits should also assess whether staff have the skills to manage crypto-related risk—and if not, outside help must be brought in.

“When audit expertise does not exist within the banking organization, management should engage appropriate external resources, with sufficient independence, to assess crypto-asset safekeeping operations,” the agencies said.

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