On April 11, Virginia enacted a new law (HB 263), which goes into effect on July 1, 2022, permitting “banks” 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.” The law, in a first for Virginia, defines “virtual currency” as “an electronic representation of value intended to be used as a medium of exchange, unit of value, or store of value,” which “does not exist in a physical form; it is intangible and exists only on the blockchain or distributed ledger associated with a particular virtual currency.”

A bank is defined under Virginia law as “a corporation authorized by statute to accept deposits and to hold itself out to the public as engaged in the banking business in the Commonwealth.” For a bank chartered under Virginia law to offer virtual currency custody services, it must have “adequate protocols in place to effectively manage risks and comply with applicable laws” and “carefully examine the risks involved in offering such services through a methodical self-assessment process.” At the federal level, the Office of the Comptroller of the Currency issued Interpretive Letter #1170 on July 22, 2020, which permits national banks to offer cryptocurrency custody services.

If a bank decides to offer virtual currency custody services, it “shall:

  1. Implement effective risk management systems and controls to measure, monitor, and control relevant risks associated with custody of digital assets;
  2. Confirm that it has adequate insurance coverage for such services; and
  3. Maintain a service provider oversight program to address risks to service provider relationships as a result of engaging in virtual currency custody services.”

The law allows Virginia banks to offer virtual currency custody services either in a nonfiduciary or fiduciary capacity.

  • In a nonfiduciary capacity, a bank acts “as a bailee, taking possession of the customer’s asset for safekeeping while legal title remains with the customer, meaning that the customer retains direct control over the keys associated with their virtual currency”;
  • In providing virtual currency custody services in a fiduciary capacity, a bank must “possess trust powers” and have a “trust department” as required under Virginia law, and “require customers to transfer their virtual currencies to the control of the bank by creating new private keys to be held by the bank,” which permit a bank “to have authority to manage virtual currency assets as it would any other type of asset held in such capacity.”

The law also provides that “[t]he owner of virtual currency holds cryptographic keys associated with the specific unit of virtual currency in a digital wallet, which allows the rightful owner of the virtual currency to access and utilize it.”

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Photo of Keith J. Barnett Keith J. Barnett

Keith’s experience representing clients in the financial services industry as a litigation, compliance, regulatory, investigations (internal and regulatory), and enforcement attorney spans 20 years. Keith represents clients against government regulators (CFPB, FTC, SEC, CFTC), industry regulators (FINRA), and private litigants in federal courts…

Keith’s experience representing clients in the financial services industry as a litigation, compliance, regulatory, investigations (internal and regulatory), and enforcement attorney spans 20 years. Keith represents clients against government regulators (CFPB, FTC, SEC, CFTC), industry regulators (FINRA), and private litigants in federal courts, state courts, and before arbitration and administrative law panels in the financial services industry.

Photo of Ethan G. Ostroff Ethan G. Ostroff

Ethan Ostroff’s practice focuses on financial services litigation and consumer law compliance counseling. Ethan is part of the firm’s national practice representing consumer-facing companies of all types in defense of individual and class action claims and counseling them on compliance with federal and

Ethan Ostroff’s practice focuses on financial services litigation and consumer law compliance counseling. Ethan is part of the firm’s national practice representing consumer-facing companies of all types in defense of individual and class action claims and counseling them on compliance with federal and state laws.

Photo of Gregory Parisi Gregory Parisi

Greg leverages his broad experience and pragmatic approach, bringing a wealth of knowledge, business insight and practical problem-solving skills to efficiently manage transactions and advise clients in an evolving legal landscape. He combines his corporate and transactional experience with a robust knowledge of…

Greg leverages his broad experience and pragmatic approach, bringing a wealth of knowledge, business insight and practical problem-solving skills to efficiently manage transactions and advise clients in an evolving legal landscape. He combines his corporate and transactional experience with a robust knowledge of bank regulatory issues to provide valued legal solutions for financial institutions, financial technology companies and other businesses. Greg often works closely with clients to design and implement internal policies and procedures and contractual safeguards in commercial arrangements in connection with corporate and regulatory requirements and risk management best practices.

Photo of Kalama Lui-Kwan Kalama Lui-Kwan

Kalama represents parties in complex commercial disputes arising out of M&A deals. He also has a national litigation practice representing consumer-facing companies in class actions and regulatory investigations.

Photo of Seth A. Winter Seth A. Winter

Seth represents publicly traded companies and financial institutions, including banks and bank holding companies, nonbank lenders, and other fintech and financial services companies, on regulatory, compliance, strategic, corporate law, securities law, and disclosure matters.

Photo of Carlin McCrory Carlin McCrory

A seasoned regulatory and compliance attorney, Carlin brings extensive experience representing financial institutions, fintechs, lenders, payment processors, neobanks, virtual currency companies, and mortgage servicers.