Virginia Law Permits Banks to Provide Virtual Custody to Customers

On April 11, 2022, Virginia enacted HB 263 (“Bill”), which permits Virginia banks to provide customers with virtual currency custody services.

Definition of Virtual Currency

The Bill 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; is intangible and exists only on the blockchain or distributed ledger associated with a particular virtual currency.”

“Custody services” are defined as the act of “safekeeping and custody” of customer assets by the bank.

Requirements to Offer Virtual Currency

To provide virtual currency custody services, a bank must possess “adequate protocols” which will “effectively manage risks and comply with applicable laws.”

Prior to offering these services, a bank must “carefully examine” these risks through a “methodical self-assessment process.” Following a bank's assessment and subsequent decision to offer these services, the bank must:

• Implement a risk management system and controls intended to “measure, monitor, and control” the associated risks;

• Possess adequate insurance coverage; and

• Maintain a service provider oversight program to address the relevant risks, if the bank utilizes a third-party service provider to provide these services.

Direction to Financial Institutions

Although this Bill is limited to Virginia-based banks, banks in all states should be aware of the requirements being established via state-based legislative efforts and should continue to monitor the regulatory efforts of their respective states to follow suit.