TL;DR Breakdown
- State-chartered banks will from now be allowed to offer custodial services for cryptocurrencies.
- Safekeeping services would vary from bank to bank,
According to a notice by the Texas Department of Banking, State-chartered banks will from now be allowed to offer custodial services for cryptocurrencies. The only requirements will be for banks to implement law-compliant protocols. However, this is not the first time chartered banks in Texas are offering digital asset safekeeping for its client. The department wrote that the financial code for the provision of these services has been in existent with respect to both traditional and virtual currencies. However, there isn’t a lot of change on the part of the users and the department of banking, but it serves as a significant milestone in cryptocurrency regulations.
What are virtual currencies?
In the announcement, the department described the virtual currency as lacking any physical form and an electronic representation of value that serves as a unit of exchange and a store of value. They went on to write that a virtual currency should exist in a distributed ledger on the blockchain, and respective holders should have the cryptographic keys of their individual associated copy of the ledger. These cryptographic keys allow virtual currency holders to access and spend their holdings.
Distinct custodial services for cryptocurrencies depending on risk
On the custodial services, the department added that the safekeeping services would vary from bank to bank, depending on individual banks’ risk tolerance, risk appetite, expertise, and business model. The custodial services for cryptocurrencies could be fiduciary or non-fiduciary, where the bank can store copies of a client’s cryptographic keys and have direct access to controlling their client’s holdings.
Interested chartered banks have the option of storing copies of their client’s cryptographic keys and even accept transfers of cryptocurrencies into their digital wallets. The banks will also control these wallets. Besides, the banks can also partner with third-party services to improve the quality of the custodial program. Where banks have attained some level of trust powers with their clients, they can also provide fiduciary custody services. This means they are legally obligated to handle, safe keep, and return all assets to their customers.
Closing remarks
The Texas Department of Banking charters has offered super parity with national banks since 1999. This offers such banks a degree of choice relatively different from the provisions of a federal charter. This means that a chartered bank in Texas has the allowances for performing any function that a federal bank could otherwise perform. Thereby making a state bank more appealing for financial institutions and enterprises looking for a business. Texas commands the highest number of banks after California.
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