What Shifting Crypto Policy in Washington Means for Crypto Custody and Banking

The cryptocurrency growth roadmap has moved from the fringes to the financial mainstream in America.

The reason? As the digital asset ecosystem matures, Washington’s own evolving regulatory stance is poised to potentially reshape how banks and custodians engage with digital assets.

Federal agencies, including the Securities and Exchange Commission (SEC), Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve have begun to clarify their positions, reversing or softening previous warnings and setting the stage for greater integration of crypto assets into the mainstream financial system.

At the center of these developments is the SEC, which has long maintained a cautious, some would say adversarial, stance toward cryptocurrencies. One of the most pressing issues has been the regulatory treatment of crypto custody: whether and how regulated financial institutions can hold digital assets on behalf of clients.

“It is important for the SEC to grapple with custody issues, which are some of the most challenging as we seek to integrate crypto assets into our regulatory structure,” said SEC Commissioner Hester M. Peirce, leader of the agency’s Crypto Task Force.

The SEC’s existing rules require that qualified custodians, which are entities that safeguard assets for institutional investors, meet specific criteria for holding client securities. Historically, these rules were not written with digital assets in mind, creating a gray area for banks and FinTechs hoping to launch crypto custody solutions.

On Friday (April 25), the SEC’s Crypto Task force held a roundtable entitled “Know Your Custodian: Key Considerations for Crypto Custody,” where several industry witnesses advocated for a principles-based approach to custody regulation, rather than a framework that focuses on the technology, since it’s hard for rules to keep up with digital advances.

The direction of travel is clear: crypto custody is moving toward an established part of the financial system.

Read also: Crypto Firms Chase Bank Charters as Circle Launches Stablecoin Orchestration Layer

In parallel, both the FDIC and the Federal Reserve have updated their guidance on crypto activities by banks. In the wake of the crypto sector’s ongoing turbulence, both agencies had earlier issued policy statements warning banks of the risks associated with holding or facilitating crypto transactions. These statements, while not outright prohibitions, had a chilling effect: several banks halted partnerships with crypto firms or dropped plans for digital asset products.

The evolving policy reflects both external and internal pressures. Externally, the crypto industry has proven more resilient than some predicted after the 2022-2023 downturn. The successful launch of spot Bitcoin ETFs, increased adoption of stablecoins, and growing institutional interest have all underscored the demand for regulated, bank-grade digital asset services.

On Thursday (April 24), the FDIC formally withdrew several prior warnings that had broadly discouraged banks from crypto involvement, replacing them with more targeted guidance focused on risk management and due diligence. The agency emphasized that banks remain responsible for assessing the unique risks of digital assets — but clarified that “engagement in permissible crypto-related activities is not precluded, provided appropriate controls are in place.”

Another banking regulator, the Office of the Comptroller of the Currency (OCC), reclarified certain crypto banking permissions on March 7.

These statements represent a marked shift from the blanket skepticism that characterized official attitudes even a year ago. Some observers hold that the moves signal that policymakers have come to recognize that excluding crypto from the traditional financial system does not make the risks disappear — it simply drives activity to less-regulated corners of the market.

There is also a recognition that American competitiveness in financial innovation depends on regulatory clarity, lest business migrate to more accommodating jurisdictions overseas.

Read also: OCC Says Banks Can Hold Crypto, but Should They?

For banks and financial institutions, the regulatory thaw opens new opportunities — but also new responsibilities. The ability to offer digital asset custody, payments and trading services could enable banks to win new business and compete with both FinTech startups and traditional rivals. Institutional investors, pension funds and high-net-worth individuals have all expressed interest in digital asset exposure, provided it can be accessed through trusted, regulated channels.

Custody is the linchpin of this activity, but compliance remains complex. Even with clearer guidance, banks must navigate evolving rules around anti-money-laundering (AML), know-your-customer (KYC) requirements, capital reserves and cybersecurity. For smaller banks and credit unions, meeting these standards could be cost-prohibitive.

For FinTechs, regulatory clarity is a double-edged sword: while it opens the market to more competition from traditional banks, it also offers the promise of more consistent and predictable rules of engagement.

From an investor perspective, the shift toward regulated crypto custody is seen as a positive step for market integrity and consumer protection. High-profile failures in the unregulated crypto sector have highlighted the risks of relying on offshore or opaque custodians. As more assets are held with entities subject to U.S. law, oversight and insurance requirements, the risks of loss, theft or fraud are expected to diminish.

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