Banks Flood Crypto Custody Market After Regulatory Overhaul

The landscape of bank custody services for cryptocurrencies has undergone significant changes in recent years. For most of the past decade, traditional banks were hesitant to hold digital assets due to regulatory and accounting constraints.

Two key regulatory changes made it possible for banks to enter the crypto custody space: the rescinding of Staff Accounting Bulletin 121 and the OCC's Interpretive Letters 1183 and 1184. The SAB 121 change allowed banks to avoid treating client-held cryptocurrencies as their own liabilities, making it economically rational for them to participate in crypto custody.

The OCC letters confirmed that national banks and federal savings associations can custody crypto assets, execute buy and sell orders, and use sub-custodians. This removed the requirement for banks to obtain supervisory nonobjection before engaging in crypto custody.

In response to these changes, several traditional banks have launched or committed to launching direct crypto custody services. BNY Mellon, State Street, Standard Chartered, U.S. Bank, and Citigroup are among those that have entered the market.