021-19 Wyo. Code R. §§ 19-4 - Digital Asset Custodial Services; Permissible Transactions; Customer Funds

(a) A bank providing custodial services under W.S. 34-29-104 may serve as a "qualified custodian," as specified by 17 C.F.R. § 275.206(4)-2, as incorporated by reference on July 1, 2019 or as a custodian authorized by the United States commodity futures trading commission or other law. A "qualified custodian" shall maintain customer digital assets, funds and other securities which are not digital assets:

(i) In a separate account for each customer under that customer's name; or

(ii) In accounts that contain only customer digital assets, funds and other securities which are not digital assets, under the bank's name as agent or trustee for customers.

(b) A bank shall maintain possession or control over each digital asset while in custody. If a customer makes an election under W.S. 34-29-104(d)(ii), a bank maintains possession or control under this subsection by entering into an agreement with the counterparty to a transaction which contains a time for return of the asset.

(c) Consistent with W.S. 34-29-104(d) and subsection (d) of this section, before providing custodial services to a customer, a bank shall require the customer to elect, via a written agreement with the bank, one (1) of the following relationships for each digital asset account, or class of digital assets, for which custodial services will be provided:

(i) Custody under a bailment as a nonfungible or fungible asset, dependent on the nature and quality of the asset. Assets held under this paragraph shall be strictly segregated from other assets; or

(ii) Custody pursuant to subsection (d) of this section for the purpose of conducting fiduciary and trust activities, which may include a securities intermediary relationship under title 34.1, article 8, Wyoming statutes (Uniform Commercial Code).

(d) If a customer makes an election under W.S. 34-29-104(d)(ii) and paragraph (c)(ii) of this section, the bank may, based solely on customer instructions, undertake transactions with a digital asset authorized under subsection (e) of this section on behalf of the customer. The bank shall not act, and may not use its discretion, unless explicitly granted such authority by the customer. As used in this chapter, "customer instructions":

(i) Except as otherwise provided in paragraph (e)(ii) of this section, mean a distinct, written authorization from a customer to undertake transactions specified under subsection (e) of this section, and need not include all or a majority of the aspects of the transaction, or all requirements customary to be provided to a directed custodian, as long as the intent of the customer regarding the type of transaction and understanding of potential risks is clearly apparent in the written authorization;

(ii) May include all information customarily provided to a directed custodian with respect to a transaction, and may provide for the bank to serve only as a directed custodian for that transaction;

(iii) May include a form the bank provides to a customer, whether solicited or unsolicited, listing a range of options from which a customer may choose, provided that the role of the bank shall be limited to setting forth the potential benefits and risks of a transaction in a straightforward manner.

(e) In accordance with customer instructions as specified under subsection (d) of this section and subject to applicable federal law, a bank may undertake the following transactions with digital assets in any market in which the transaction is not prohibited by law:

(i) Buying and selling digital assets;

(ii) Participating in staking pools for proof-of-stake-type digital assets, in masternodes, voting for delegates in delegated proof-of-stake protocols, leased proof-of-stake arrangements, locked stability fee arrangements, or similar revenue-generating arrangements characterized by higher gains accruing to larger pools of assets for the purpose of providing economic incentives for customers to pool assets. Banks may share in gains accruing to such pools but only if the terms through which the custodian may share in the gains, as well as the benefits and risks from participation in the pools, are fully disclosed to customers and customers expressly agree;

(iii) Regulated commodities activities, including derivatives, consistent with safe and sound banking practices;

(iv) Exchange services from digital assets to any official currency of a jurisdiction or other type of digital asset and vice versa. To the extent practicable, services under this paragraph shall be based on existing standards and best practices for foreign exchange transactions;

(v) Lending of digital assets, excluding rehypothecation, consistent with W.S. 34-29-104(k) and section 12 of this chapter;

(vi) Securities activities, including those specified by 17 C.F.R. 218.100, consistent with safe and sound banking practices;

(vii) Other classes of transactions approved by the Commissioner in writing in advance including exchange-traded derivative contracts defined by an exchange and over-the-counter derivative contracts. The role of the Commissioner under this paragraph shall not include consideration of the merits of a proposed class of transactions brought under this paragraph, but rather is limited to ensuring that the proposed class of transactions is clearly defined so that the boundaries of the approval are clear and that the solvency, safety and soundness of the bank is not likely to be impaired by participating in the proposed class of transactions.

(f) Consistent with section 2 of this chapter, custodial services includes providing services to mutual funds and investment managers, retirement plans, bank fiduciary and agency accounts, bank marketable securities accounts, insurance companies, corporations, endowments and foundations and private banking customers based on the following:

(i) Core custodial services: Control of customer assets, settlement of trades, investment or allocation of cash balances as directed, collection of income (including ancillary and subsidiary benefits), processing of corporate actions, pricing assets, providing recordkeeping, reporting services, fund administration, performance measurement, risk measurement, compliance monitoring and transactions based on customer instructions, consistent with subsections (d) and (e) of this section;

(ii) Global custodial services: Custodial services for cross-border transactions, executing foreign exchange transactions and processing tax reclaims and other tax-based transactions;

(g) A bank shall not provide custodial services under this chapter in a manner that would likely impair the solvency or the safety and soundness of the bank, as determined by the Commissioner after considering the nature of custodial services customary in the banking industry.

(h) A bank may act as a fiduciary or trustee while providing custodial services or may provide custodial services on a purely contractual basis.

(j) A special purpose depository institution, as chartered under W.S. 13-12-101 through 13-12-126, may, based on customer instructions consistent with this section, undertake all transactions specified under subsection (e) of this section while providing custodial services. Consistent with W.S. 13-12-103(b) and (c) and section 3, 2019 Wyoming Session Laws, chapter 91, the lending prohibition in W.S. 13-12-103(c) shall not apply to custodial services provided by a special purpose depository institution as a result of the customer assuming all risk of loss for custodial service transactions. This prohibition is intended to ensure the solvency of the special purpose depository institution's banking business, as defined in W.S. 13-1-101(a)(ii).

(k) A bank may execute all components of a transaction within the bank or as otherwise agreed by the bank and the customer if that execution is in the best interests of the affected customer. Unless a bank and a customer have entered into an agreement for transactions to be executed with a specific person or by the bank, the bank shall provide best execution and seek the most favorable terms for the contemplated transaction reasonably available under the circumstances. A bank may tailor execution based on the nature of the legal relationship with the customer. Public availability of pricing shall adhere to existing securities or commodities market practices for banks. Best execution shall not require that the lowest possible commission be obtained or be executed within a set period of time different from customer instructions. Banks shall establish procedures to evaluate and demonstrate that transactions are executed in accordance with these rules and customer instructions using the following standards:

(i) The selection of a person to complete a transaction, as well as all aspects of the transaction, shall comply with federal and state standards and, as reasonably possible, industry best practices. For purposes of this subsection, "person" may include broker-dealers, digital asset exchanges or digital asset lenders; and

(ii) Banks shall conduct reasonable research, under the circumstances, regarding best price, speed of execution, certainty of execution, counterparty risk, security practices, conflicts of interest, recordkeeping capabilities and the commission rate or spread.

(l) Banks shall provide custodial services for customer funds consistent with safe and sound banking practices, and as otherwise required by applicable securities or commodities laws.

(m) As an incidental activity, a bank may provide non-custodial key management services, including key services for multi-signature arrangements and smart contracts, transaction verification, signature services, oracle functions, dispute or emergency resolution and other services incidental to multi-signature arrangements or smart contracts which may be performed by a trusted third-party. A bank which provides such non-custodial key management services under this paragraph shall not be considered to have custody of an asset.

(n) A bank may provide safekeeping services for a device containing digital asset private keys. Unless otherwise agreed to by the bank, the bank shall not have a duty to provide power and monitoring services relating to the device.

(o) A bank may issue, use or participate in innovative payment instruments and networks, including independent node verification networks and stablecoins, consistent with applicable law and safe and sound banking practices.

Notes

021-19 Wyo. Code R. §§ 19-4

Adopted, Eff. 11/8/2019. Amended, Eff. 5/13/2021.