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 Once signed into law, a bill passed by the Virginia Senate allows banks to provide custodial services for bitcoin in either a fiduciary or non-fiduciary capacity.

• The Virginia Senate passes legislation allowing banks to provide custodial services for bitcoin and other cryptocurrencies.
• Banks will use self-assessment criteria to determine whether or not to provide custodial services.
• If a bank chooses to be a fiduciary, new private keys must be generated and held by the bank, whereas non-fiduciary banks allow customers to retain title ownership.

In early January 2022, Delegate Christopher T. Head, Senate member for the state of Virginia, introduced House Bill 263 to allow traditional banks operating in the Commonwealth of Virginia to offer custodial services for bitcoin and other cryptocurrencies.

“A bank may provide its customers with virtual currency custody services so long as the bank has 26 adequate protocols in place to effectively manage risks and comply with applicable laws,” the bill outlines.

In order for banks to offer custodial services they must go through a “methodical”

process of self-assessment, which requires it to “carefully examine the risks involved in offering such services,”

the provisions of the bill. 

The bill goes on to explain the assessment criteria, stating that banks are expected to implement effective risk management, controls for the measurement and control of relevant risk associated with banks holding custody of cryptocurrencies, confirmation of proper insurances in place, and the maintenance of service provider oversight programs designed to reduce risks to service providers.

The bill proposes to allow banking infrastructure to act in either a fiduciary or non-fiduciary capacity. If a bank wishes to operate in a fiduciary capacity:

“Acting in a fiduciary capacity, the bank shall require customers to transfer their virtual currencies to the control of the bank by creating new private keys to be held by the bank.”

If a bank wishes to operate in a non-fiduciary capacity, it must:

“In providing such services in a non fiduciary capacity, the bank shall act as a bailee, taking possession of the customer's asset for safekeeping while legal title remains with the customer, meaning that the customer retains direct control over the keys associated with their virtual currency.”

The bill was passed by a vote of 39-0 and now heads to Governor Glenn Youngkin's desk to be signed into law. 

DISCLAIMER

The author's or anyone else's views or opinions expressed in this article are for informational purposes only and do not constitute financial, investment, or other advice. Investing in or trading in crypto assets carries a financial risk.

IMAGE CREDIT

Featured image via wikipedia.org

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