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1Repair Windows errors before they cause bigger problems2Scan for outdated or missing drivers - takes under a minute3Clear out junk files and repair common Windows errorsBanks manage cryptocurrency as a controlled custody service, not as an ordinary deposit. They assess the technology and business model, protect private keys, authorize and reconcile every transfer, screen customers and transactions under financial-crime rules, supervise any sub-custodian, and disclose what the bank is—and is not—responsible for. U.S. federal guidance confirms that national banks and federal savings associations may provide custody and certain customer-directed crypto execution, but only with ordinary safety-and-soundness and compliance controls.
What cryptocurrency custody means at a bank
The Federal Reserve, FDIC, and OCC’s joint statement of July 14, 2025 defines safekeeping as holding an asset for a customer. Under that definition, a bank can hold crypto-assets in either a fiduciary or non-fiduciary capacity. The service must be conducted safely and soundly and comply with applicable laws and regulations. The statement describes existing risk-management principles; it does not create a new, one-size-fits-all supervisory framework.
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Custody is different from a customer buying a token on an exchange and leaving it there. A custody bank takes responsibility for the control environment around the customer’s asset: who controls the cryptographic keys, who can approve a blockchain transaction, how ownership records are maintained, how suspicious activity is detected, and how the service is recovered after an outage or compromise. The legal treatment of the asset, insurance or loss protection, tax, accounting, and any securities or commodities obligations depend on the facts and are not settled by the general safekeeping statement.
What U.S. banks are permitted to do
National banks and federal savings associations
On March 7, 2025, the OCC said Interpretive Letter 1183 confirms that national banks and federal savings associations may provide crypto-asset custody, conduct certain stablecoin activities, and participate in independent node-verification networks. The OCC rescinded a previous requirement for supervisory nonobjection and advance demonstration of controls. That change did not remove the ordinary requirement to operate safely, soundly, and in compliance with law.
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“The OCC expects banks to have the same strong risk management controls in place to support novel bank activities as they do for traditional ones.” — Acting Comptroller of the Currency Rodney E. Hood, March 7, 2025.
Customer-directed buying and selling
On May 7, 2025, the OCC said Interpretive Letter 1184 confirms that national banks and federal savings associations may buy and sell assets held in custody when a customer directs the transaction. Execution can be performed by the bank or by a qualified third party under the bank’s oversight. Permission to execute an order does not eliminate the need for customer authorization, transaction controls, financial-crime screening, records, and disclosures.
What the federal guidance does not decide
The guidance does not prescribe one wallet design, approve every token, or establish a universal customer-disclosure form. State-charter powers, state money-transmission rules, non-U.S. regulation, securities and commodities requirements, tax, accounting, deposit-insurance treatment, and the bank’s individual supervisory relationship require separate, fact-specific analysis.
How a bank builds the custody control system
1. Start with a documented risk assessment
Before launch and as the service changes, the bank documents its business model and core financial risks. The assessment addresses whether management understands a complex and evolving asset class, whether the control environment is strong enough for the proposed activity, and what happens if a critical service fails unexpectedly. It should identify the assets and networks the bank will support, the customer types and jurisdictions it will accept, and the transaction volumes and counterparties it can monitor.
The board, officers, and employees need enough technical and operational knowledge to set limits, approve procedures, challenge assumptions, and supervise specialists. Expertise is not a one-time certification: networks, attack methods, software, and market practices change, so training and risk assessments must be updated.
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2. Define the supported assets and networks
A bank decides which crypto-assets, blockchains, token standards, and network events it can safely support. That decision includes how deposits, withdrawals, forks, airdrops, network upgrades, and a chain halt will be handled. A bank may limit service to assets and networks it can monitor and reconcile reliably; the federal statement does not require it to support every asset.
3. Design accounts and wallets
The operating model specifies whether each customer receives a segregated address or whether customer holdings are recorded in an omnibus wallet with an internal sub-ledger. It also states who owns the on-chain address, how customer entitlements are calculated, and how the bank proves that on-chain balances agree with its books. Segregation can make individual attribution easier, while omnibus arrangements can simplify network operations; either model requires accurate records, controls over access, and clear terms.
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4. Control private keys and sensitive information
Private-key compromise or loss is a central custody risk. Someone who obtains the key or an equivalent signing capability may transfer assets without permission, and a bank may face liability for resulting customer losses. A bank therefore governs the full key lifecycle: generation, storage, backup, use, rotation or replacement where possible, revocation, destruction, and recovery.
Controls normally separate duties so that no single employee can create and approve a transfer. Strong authentication, hardened systems, restricted administrative access, tamper-evident logs, continuous monitoring, and tested backups protect key material and related secrets. Hardware security modules or other technologies may be used, but the regulatory statement does not mandate a particular product or architecture. Technology and risk controls must be revisited as threats and supported networks evolve.
5. Authorize transfers and maintain an audit trail
A customer instruction should be authenticated, checked against account permissions and transaction limits, screened for fraud and sanctions concerns, and approved through the bank’s defined workflow before signing. The bank records who gave the instruction, who reviewed it, what address and network were used, and the resulting blockchain transaction identifier. Exceptions—such as an address change, unusual velocity, or a recovery action—need a documented escalation path rather than an informal override.
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6. Reconcile continuously
Operations compare blockchain balances and transaction histories with the custody ledger and customer statements. Reconciliations should identify pending, failed, reversed, or incorrectly routed transactions and assign an owner and deadline for resolution. Access logs, approvals, key events, and reconciliations provide evidence for internal audit, examination, customer complaints, and post-incident analysis.
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The contingency plan covers a signing-system failure, a lost or suspected-compromised key, a blockchain reorganization or halt, a cyberattack, a sub-custodian outage, and an inability to reach customers. It defines when withdrawals are paused, how assets are moved to a clean environment, how customers and regulators are notified, and how service is restored. Recovery exercises should test people, technology, communications, and records—not just whether a backup file exists.
Custody models banks can use
| Decision axis | Model A | Model B | Control question |
|---|---|---|---|
| Custodian | Bank-operated custody | Sub-custody through a third party | Can the bank evidence oversight, service levels, security, resilience, and an exit or replacement plan? |
| Legal capacity | Fiduciary | Non-fiduciary | What duties, ownership records, liability terms, and customer remedies apply to the account? |
| Wallet accounting | Segregated wallet or address | Omnibus wallet with customer sub-ledgers | How are individual entitlements, transaction approvals, and reconciliations demonstrated? |
| Key management | In-house generation and signing | Outsourced key-management or signing service | Who can access key material, how is access logged, and how can the bank recover or substitute the service? |
| Execution | Bank executes on customer instruction | Approved execution provider acts under instruction | How are authorization, best execution or other applicable duties, screening, and records handled? |
| Network scope | Limited supported assets and chains | Broader supported scope | Can monitoring, upgrades, incident response, and reconciliation keep pace with every supported network? |
These are operating choices, not safe-harbor labels. A bank must show that the selected model fits its expertise, controls, customers, and legal obligations.
How compliance teams manage AML, KYC, and sanctions risk
The Federal Reserve’s Bank Secrecy Act and OFAC supervisory materials cover anti-money-laundering programs, suspicious-activity and transaction reporting, the USA PATRIOT Act, customer identification and due diligence, and examination practices. Crypto custody therefore sits inside the bank’s existing risk-based financial-crime framework, with controls adjusted for the asset, network, counterparties, geography, transaction patterns, and sanctions exposure.
- Identify and verify the customer. The bank applies its customer-identification program, verifies beneficial owners where required, understands the customer’s business and expected activity, and assigns a risk rating.
- Understand the source and purpose of activity. Customer due diligence establishes why the customer needs custody, where funds originate, which counterparties are expected, and what transaction size and frequency are plausible.
- Screen people, entities, and addresses. The bank screens customers and relevant counterparties against sanctions requirements and uses blockchain intelligence and internal data to identify exposure to sanctioned jurisdictions, services, or high-risk patterns.
- Monitor transactions. Rules and investigation workflows look for structuring, rapid movement, unusual geographic exposure, mixer or obfuscation indicators, account takeover, and activity inconsistent with the customer profile. Alerts require documented review and disposition.
- File required reports and keep records. Suspicious-activity reports, other transaction reports, and retention practices follow applicable BSA and related requirements. The bank preserves the data needed to reconstruct an on-chain and off-chain transaction.
- Escalate and restrict when necessary. A potential sanctions hit, compromised account, fraudulent instruction, or unexplained balance difference may require a hold, enhanced review, customer contact, regulatory escalation, or account closure under the bank’s procedures.
Crypto addresses are not a substitute for customer identity. A compliant program links on-chain activity to verified customers and counterparties while recognizing that attribution can be incomplete and may change as new intelligence becomes available.
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What changes when custody is outsourced
The OCC’s May 7, 2025 statement allows banks to outsource permissible custody and execution activities, including to sub-custodians, subject to appropriate third-party risk management. Outsourcing changes who performs a task; it does not transfer the bank’s duty to control its risks or comply with law.
Due diligence before appointment
The bank evaluates the provider’s ownership, financial condition, security design, key-management process, supported networks, incident history, compliance program, audit evidence, staffing, and subcontractors. It verifies that the provider can serve the bank’s jurisdictions and customer types and that its controls match the bank’s risk appetite.
Contract and ongoing oversight
Contracts should define security requirements, authorization rules, record ownership, reconciliation frequency, confidentiality, audit and examination access, incident-notification deadlines, recovery objectives, service-level measures, data location, subcontracting, termination assistance, and return or migration of assets. The bank then monitors performance, reviews independent assurance and testing, performs its own risk assessments, and reports material issues to management and the board.
Exit and substitution
A credible exit plan identifies how keys, ledgers, customer records, and network connections would move to another provider or back to the bank. It includes tested procedures for a provider failure, insolvency, cyber incident, regulatory restriction, or strategic termination. A plan that depends on an unavailable provider’s cooperation is not a complete contingency.
How banks manage customer risk and disclosures
Operational security does not by itself answer what a customer is entitled to receive or what the bank guarantees. Account terms should explain the legal capacity of the service, whether assets are segregated or pooled, how transfers are authorized, which assets and networks are supported, when deposits or withdrawals may be delayed, and how forks, upgrades, airdrops, and network failures are treated.
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Terms should also identify limits on liability, complaint and error-resolution channels, privacy and data-sharing practices, the role of any sub-custodian, and the circumstances in which the bank may freeze or close an account. Customers need an explicit explanation of what the bank does not promise—for example, uninterrupted blockchain availability or protection from market-price loss. The cited federal materials require safe, sound, legally compliant management but do not prescribe a single disclosure template.
Fraud controls protect customers as well as the bank. Banks may use transaction limits, address allowlists, cooling-off periods for new destinations, dual approval, step-up authentication, and out-of-band confirmation for high-risk instructions. These measures add friction; the account agreement should explain when they apply and how a customer can challenge an incorrectly blocked transfer.
A practical review checklist for a bank’s crypto service
- Which legal entity provides custody, and in what fiduciary or non-fiduciary capacity?
- Which assets, networks, deposits, withdrawals, and customer-directed trades are actually supported?
- Are holdings segregated by customer or recorded in an omnibus wallet with a reliable sub-ledger?
- Who controls private keys, how many approvals are required, and how are backups and recovery tested?
- How often are on-chain balances reconciled to customer records, and how are discrepancies disclosed?
- What identity, sanctions, transaction-monitoring, and suspicious-activity controls apply?
- Is a sub-custodian or execution provider involved, and what evidence demonstrates the bank’s oversight?
- What happens during a key compromise, blockchain halt, cyberattack, provider outage, or disputed instruction?
- What customer losses, delays, or market risks are excluded from the bank’s guarantee?
- Which protections depend on state law, the customer’s jurisdiction, or a separate regulatory regime?
Common failure modes and the control response
Lost or compromised signing credentials
The bank should stop affected signing operations, isolate systems, activate recovery keys or a clean environment, investigate access logs, reconcile balances, notify required parties, and document customer-loss decisions. Prevention depends on least privilege, separation of duties, hardened key storage, and tested recovery rather than on a single security product.
Unclear ownership in an omnibus wallet
If the sub-ledger cannot prove each customer’s entitlement, a blockchain balance alone is insufficient. Banks need timely reconciliations, controlled ledger changes, independent review, and terms that explain the accounting model and the consequences of an operational error.
Sanctions or suspicious-activity alert overload
Rules that produce too many low-quality alerts can hide serious cases. Banks calibrate scenarios to the supported assets and customer population, use investigation expertise, test alert effectiveness, and document why activity was cleared, restricted, or reported.
Provider outage or failure
A bank that cannot reach its sub-custodian may be unable to move assets or answer customers. Contractual notification, redundant communications, tested migration procedures, and an alternate provider or in-house fallback reduce that dependency.
Where the federal guidance stops
The July 2025 interagency statement and the 2025 OCC interpretations describe U.S. federal banking permissions and risk-management expectations. They do not answer every question for every bank or customer. State law may impose additional licensing or consumer-protection requirements; non-U.S. customers may be subject to another country’s rules; a token may implicate securities or commodities regulation; and tax, accounting, and deposit-insurance treatment require separate analysis. A bank’s charter, supervisors, contracts, and actual service design determine the final obligations.
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