The Hawaii State Senate has passed the first reading of a bill authorizing banks to hold digital assets in their custody.
It has been reported that the bill was introduced on January 17 by five state senators, including Kurt Fevella, the only Republican member of the Senate. It passed the first reading on January 21 and was then referred to the committees on Judiciary and Commerce, and Consumer Protection and Health on January 23.
However, the bill specifies the set of provisions that a bank must adhere to in order to provide custodial services for digital assets. Custodial services 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 include fund administration and the execution of customer instructions.”
In order for a bank to qualify as a crypto custodian, it has to adhere to certain standards regarding accounting and internal controls, maintain IT best practices, and comply with federal Anti-Money Laundering and Know Your Customer requirements.
Likewise, in addition to opening up bank regulations to include cryptocurrencies, the proposed law would classify digital assets under the Uniform Commercial Code, a set of federal laws in the United States that aims to provide uniformity in legislation surrounding sales and commercial transactions in the country.
Digital assets would then further be sub-categorized as digital consumer assets, digital securities, and virtual currencies. All are classified as intangible personal property.
Furthermore, the bill specifies the manner of perfecting a security interest in digital assets and discusses various methods such as smart contracts and multi-signature arrangements. However, the proposed legislation also authorizes courts to hear claims relating to digital assets.
With digital assets, their security interest, and bank custodial services defined, the state courts are also given jurisdiction to hear claims in both law and equity regarding digital assets.
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It has been analyzed that Hawaii has previously imposed strict requirements on firms dealing with cryptocurrency, causing the Coinbase exchange to cease its operations in the state almost three years ago.
If passed into law, this latest bill would not only give some clarity to the classification of digital assets by bringing it in line with several other states.
Thus, it would set out a framework by which any compliant bank can act as a crypto custodian, which would potentially see Hawaii take a lead over many states in regulating this aspect of the cryptocurrency industry.
Source: capitol.hawaii.gov | cointelegraph.com