Coinbase Wants Regulators to Let Banks Custody Crypto
Commentary by Steven Lofchie
Coinbase urged US banking regulators to take action to remove what it describes as "unlawful and unjustified impediments" preventing banks from offering cryptocurrency custody services (and to outsource those services to others).
In a letter addressed to the OCC, the Federal Reserve Board and the FDIC, Coinbase requested that regulators confirm banks' authority to provide crypto custody services and to outsource such services to third-party providers like Coinbase. Coinbase emphasized that banks have long relied on third-party service providers to facilitate banking functions and that cryptocurrency custody should not be treated differently.
Coinbase called on the OCC to withdraw Interpretive Letter 1179, which it claims imposes a de facto application process for banks engaging in crypto-related activities without following proper administrative procedures. The company also urged the FRB and the FDIC to confirm that state-chartered banks may engage in crypto custody and execution services consistent with existing legal and regulatory frameworks.
The letter included a legal memorandum analyzing banks' authority to provide and outsource cryptocurrency custody services under existing US banking laws. Coinbase contended that confirming this authority would not constitute a regulatory expansion, but would remove uncertainty and eliminate barriers that it considers inconsistent with longstanding banking principles.
Coinbase also stressed that outsourcing relationships—where banks rely on third parties for technological expertise—are common in financial services and should be permitted for crypto custody under the same risk-management principles that apply to other banking activities.
Commentary
One may reasonably argue that the massive customer losses resulting from the FTX fraud might have been averted (or at least materially reduced) had investors been able to custody their crypto assets with banks.