Hawaii Proposes Law to Make Banks Act as Crypto Custodians 

Hawaii is taking a significant step towards bridging the gap between its traditional finance and cryptocurrency industries, after passing the draft of a bill that will allow banks to hold digital assets. 

The bill, which was titled “S.B2592- Relating to Digital Assets,” was introduced to the legislature on January 17 by five members of the state’s Senate. It passed the first reading on January 21, and two days later, it was referred to the Judiciary and Commerce Committee, as well as the Committee on Consumer Protection and Health. 

Setting Down Ground Rules for Banks 

Primarily, the bill specifies the provisions that banking institutions in the Aloha State will need to comply with before they can act as custodians of digital assets. 

Amongst other things, they will need to cover “the safekeeping and management of customer currency and digital assets through the exercise of fiduciary and trust powers under this section as a custodian and includes fund administration and the execution of customer instructions.”

Banks will also need to adhere to quality control standards, as well as requirements regarding accounting and internal processes, IT best practices, and compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements from the federal government. 

Apart from just providing custodian status to banks, the bill also proposes that digital assets be classified under the Uniform Commercial Code- a set of United States federal regulations that looks to ensure uniformity in legislation as far as commercial and sales transactions in the country are concerned. 

By this categorization, digital assets will be placed as either digital securities, digital consumer assets, and virtual currencies. Regardless of where an asset has been categorized, a digital asset will now be seen as intangible personal property. 

The legislation will also allow courts to hear claims relating to digital assets, while also specifying the manner to be followed when perfecting a security interest in digital assets and examining various methods- such as multi-signature agreements and smart contracts.   

Custody’s Big Year Continues 

Custody has so far been one of the most interesting aspects of the cryptocurrency space. The need for the service has been rather prominent, but up till this point, private companies in the crypto space have been leading the charge to provide it. 

One of the top custody services currently is Coinbase Custody- a dedicated arm of San Francisco-based exchange Coinbase. Coinbase Custody launched back in May 2018, and in that time, the service has seen sporadic growth. Last year, at CoinDesk’s Consensus Conference, Coinbase chief executive Brian Armstrong announced that the service already had over $1 billion in assets under management. 

“We launched our custody 12 months ago; we’ve just crossed $1 billion AUM or institutions, 70 institutions have signed up, adding about $150 million AUM a month, so, to a large degree that has been a success,” the exchange boss said. 

However, banks have also started to get in on the industry as well. Last month, Reuters reported that Dutch banking giant ING Bank is already working on cryptocurrency custody technology as part of its mission to embrace blockchain technology. Other institutions, such as German FinTech company SolarisBank and American financial services giant Fidelity Investments, also launched crypto custody services last year.