Virginia Moves Forward On Bank Bitcoin Custody Bill

CREDIT: PHOTO BY EXECUTIUM ON UNSPLASH
10

By Landon Manning

As more national and international banking firms allow different options for customer bitcoin custody services, the Virginia State Senate has now made its first step in formally accepting the practice by unanimously passing a bill that confirms banks’ right within the state to carry out these functions.

On January 12, a bill was filed with the Virginia State Legislature by State Senator Christopher T. Head, describing a number of proposed changes to the way that local banks interact with the world of Bitcoin and various other cryptocurrencies. The text of this bill is very short; only a single page, which is laser-focused on amending a space for cryptocurrency into the state’s existing regulations for banks, non-fiduciary assets, assessment of risks, etc. 

In essence, this plan would enable an explicit legal framework for banks to confidently begin carrying out operations that many larger ones have been dipping their toes into anyway. The Office of the Comptroller of the Currency (OCC) gave non-binding approval for large banks to begin doing this in 2020, and large numbers of leading banks have already made plans to integrate their own Bitcoin custody services, notably including the nation’s oldest bank.

However, despite this interest, there is currently no federal or state legislation passed into law that explicitly gives the practice the green light. Although many large banks are confident that they have the freedom to act in this sphere, huge numbers of other firms are concerned that they may somehow be in violation of federal law despite the OCC’s go ahead. With this bill in the nation’s oldest legislature, this state of affairs is quickly coming to an end. 

In a rare move of bipartisanship from an increasingly divided legislature, this Virginia bill passed the state senate with a unanimous vote, 39 yeses and zero nos, with only one senator abstaining. The bill is now set to move along to the governor’s desk, where he is expected to sign it into law. Although, as a general rule, federal law trumps state law, a bill like this can set the stage for future outcomes around bitcoin custody, serving as a framework that federal laws can be modeled on, giving data on how banks can actually carry out this program in the U.S. or encouraging a practice that is already gaining tractions. 

The bill includes several straightforward consumer protections as caveats for banks that wish to carry out these programs, noting that some of the restrictions are already present in the current legal code. There are three main consumer protection clauses for banks that have carried this assessment out and are offering active custody services: They must operate a risk management system, have adequate insurance for the assets in custody and maintain an oversight program into regular operations. The bill also includes a clause for holding assets in a fiduciary or non-fiduciary capacity. 

The ease with which this bill has moved through the Virginia legislature should be seen as a positive by the Bitcoin community, though trusting a third-party institution like a bank with custody of your bitcoin is counter to best practices. As more private businesses begin to bet on Bitcoin, regulators are showing just how much they’ve changed their tunes in the past several years. Far from the hostility that was once the norm, lawmakers are now jumping at the chance to enable Bitcoin services.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Source link