Federal Agencies Outline Liability, Compliance, and Operational Challenges
Three major U.S. financial regulators — the FDIC, OCC, and the Federal Reserve — have jointly released a document outlining the critical risks banks face when offering crypto custody services. While the document does not introduce new regulations, it highlights areas of concern for traditional financial institutions exploring digital asset safekeeping.
The guidance, titled “Crypto-Asset Safekeeping by Banking Organizations,” comes as more U.S. banks weigh entry into crypto markets, encouraged by recent regulatory shifts and growing institutional demand.
https://cointelegraph.com/news/fdic-agencies-crypto-custodial-risks-banks
Banks Could Be Held Liable for Lost Crypto Assets
One of the most significant warnings in the report is the potential legal liability banks may face if crypto assets under custody are lost. This is especially relevant when banks use third-party custodians — a common practice today.
“Banks are responsible for the activities performed by the sub-custodian,” the agencies stated.
This means that even if a breach occurs through a third party — such as a wallet provider or an infrastructure partner — the liability still falls on the bank. In light of high-profile hacks and smart contract vulnerabilities, this could represent a major risk.
Compliance With AML and BSA Regulations Is Mandatory
The report also emphasizes that crypto custody services must adhere to all anti-money laundering (AML) and Bank Secrecy Act (BSA) requirements. Given the pseudonymous nature of crypto transactions, this adds an extra layer of complexity.
Banks must develop robust compliance frameworks, including transaction monitoring, KYC verification, and suspicious activity reporting — all tailored to the nuances of blockchain-based assets.
Audit Programs and Staff Expertise Are Essential
The document advises that audit programs should be updated to address crypto-specific functions, such as:
- Private key generation and security
- Asset transfer procedures
- Settlement controls
- Internal access and permissions
If internal resources are lacking, the agencies recommend engaging external crypto security experts to ensure that operations meet institutional standards.
Easing Regulations May Encourage Traditional Bank Adoption
Despite the outlined risks, there are signs that the U.S. regulatory environment is becoming more supportive of bank participation in crypto.
In recent months:
- The Federal Reserve removed the “reputational risk” clause, which previously discouraged crypto partnerships.
- The FDIC began a regulatory reset, loosening prior restrictions on bank activity in the digital asset space.
- The OCC has signaled approval for banks to buy/sell crypto at the direction of clients.
Some large banks are even exploring the launch of a joint stablecoin initiative, while others are evaluating broader custody services.
Meanwhile, crypto-native companies like Ripple and Circle have applied for bank charters, signaling a growing convergence between traditional finance and digital assets.
Final Thoughts
As interest in digital asset services grows, U.S. banks must weigh the benefits of crypto custody against a complex set of operational and regulatory risks. The guidance from federal agencies offers a crucial framework to help banks make informed decisions and implement proper safeguards before diving into the sector.
For banks seeking to explore crypto opportunities, risk mitigation, compliance alignment, and technical preparedness will be key to long-term success.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.