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Financial Services Law Insights and Observations

Virginia allows banks to provide virtual currency custody services

State Issues Digital Assets State Legislation Virginia Virtual Currency Fintech

State Issues

On April 11, the Virginia governor signed HB 263, which permits banks in the Commonwealth to provide customers with virtual currency custody services “so long as the bank has adequate protocols in place to effectively manage risks and comply with applicable laws.” Before offering virtual currency custody services, banks must conduct a self-assessment process to carefully examine the risks involved in offering such services, which includes: (i) “implement[ing] effective risk management systems and controls to measure, monitor, and control relevant risks associated with custody of digital assets such as virtual currency”; (ii) confirming adequate insurance coverage for such services; and (iii) maintaining a service provider oversight program to address risks to service provider relationships as a result of engaging in virtual currency custody services. Banks may provide virtual currency custody services in either a fiduciary or non-fiduciary capacity. If a bank provides such services in a nonfiduciary capacity, the bank will “act as a bailee, taking possession of the customer’s asset for safekeeping while legal title remains with the customer” (i.e. “the customer retains direct control over the keys associated with their virtual currency”). Should a bank provide services in a fiduciary capacity, it must “require customers to transfer their virtual currencies to the control of the bank by creating new private keys to be held by the bank.” The bank will have “authority to manage virtual currency assets as it would any other type of asset held in such capacity.” HB 263 takes effect July 1.

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