Louisiana lets financial institutions, trust companies provide virtual currency custody

State Issues Digital Assets State Legislation Louisiana Virtual Currency

Recently, the Louisiana governor signed HB 802, which permits financial institutions or trust companies to provide customers with virtual custody services so long as there are “adequate protocols in place to effectively manage risks and comply with applicable laws.” A “trust company” is defined as “a corporation or a limited liability trust company organized in accordance with this Title, the laws of another state, or pursuant to the laws of the United States, including a trust company organized pursuant to the laws of this state before June 27, 2003, or an entity chartered to act as a fiduciary that is neither a depository institution nor a foreign bank.”

Before offering virtual currency custody services, a financial institution or trust company must conduct a “methodical self-assessment” to examine the risks involved in offering such services. Should it decide to offer such services, the financial institution or trust company must: (i) “[i]mplement effective risk management systems and controls to measure, monitor, and control relevant risks associated with custody of digital assets such as virtual currency”; (ii) confirm adequate insurance coverage for such services is in place; and (iii) “[m]aintain a service provider oversight program to address risks to service provider relationships as a result of engaging in virtual currency custody services.” A financial institution or trust company may provide virtual currency custody services in either a fiduciary or non-fiduciary capacity, consistent with its charter. If such services are provided in a nonfiduciary capacity, the financial institution or trust company will “take possession of the customer’s asset for safekeeping while legal title remains with the customer” (i.e., “the customer shall retain direct control over the keys associated with his virtual currency”). Should services be provided in a fiduciary capacity, a financial institution or trust company must “require customers to transfer their virtual currencies to the control of the financial institution or trust company by creating new private keys to be held by the financial institution or trust company.” In its fiduciary capacity, a financial institution or trust company has the “authority to manage virtual currency assets as it would any other type of asset held in such capacity.” Additionally, a financial institution or trust company may also provide virtual currency custody services through third-party service providers. HB 802 takes effect August 1.