December 6, 2020

Csilla Brimer
The Open Economy Initiative
theOpei.com

- Do state chartered trust companies possess characteristics similar to those of the types of financial institutions the Commission identified as qualified custodians? If yes, to what extent?

Yes, it’s a simplified version of banking, with much higher physical, technical and financial security relative to traditional financial institutions. Digital custody services are tailored to different customer needs so that users can seamlessly utilize both digital dollar (and future CBDCs) as well as cryptocurrencies.

State chartered SPDIs completely eliminate some of the legal hurdles that burdens technological advances - such as the reluctance of the existing banking sector to change / tailor AML / BSA compliance processes in order to accommodate the global & censorship resistant nature of cryptocurrencies. Merchant solutions using Bitcoin will enable real time final settlement in 10 min, which can significantly increase the liquidity for business owners - and can decrease the waiting period to have their funds cleared. Cash flow is a concern for most small business owners. Having to wait days after selling their products and services is a financial burden. Compliance programmability means that processes such as fraud detection, money laundering detection can be automated offering additional user security.

For example it could allow functions such as:

Reporting questionable charges (>$5,000 - configurable)

Flag international transfers for suspect transfers

Built in key management software

Built in tools to allow users to manage their own assets and recover lost keys

2. In what ways are custodial services that are provided by state chartered trust companies equivalent to those provided by banks, broker-dealers, and futures commission merchants? In what ways do they differ? Would there be any gaps in – or enhancements to – protection of advisory client assets as a result of a state chartered trust company serving as qualified custodian of digital assets or other types of client assets?*

Not only State chartered custodians de-risk banking services ( 100% reserve banking / not offering lending) , but also add additional benefits

Digital Custody Services with highly secure cyber controls - securing private keys offering hot (online), cold (offline), and deep cold custodial solutions (storing recovery phrase in 5 different physical locations means the chances of losing access due to natural disaster is one in 10 Billion or SSSS solutions such as https://iancoleman.io/shamir/)

Trading and Credit Platform : Trading platform for exchanging cryptocurrencies as well as traditional equities, bonds and foreign exchanges

Crypto asset management / financial advice

Crypto based lending or collateralized lending solutions (DeFi)

Crypto wallet integrated to bank’s mobile app or website (custodial and/or non-custodial)

3. How do advisers assess whether an entity offering custodial services satisfies the definition of qualified custodian in the Custody Rule? What qualities does an adviser seek when entrusting a client’s assets to a particular custodian? Do the qualities vary by asset class? That is, are there qualities that would be important for safeguarding digital assets that might not be important for safeguarding other types of assets? If so, what qualities and why? Should the rule prescribe different qualities based on asset class, or should the rule take a more principles-based approach and allow advisers to exercise care in selecting a custodian?*

Based on cyber security primarily - secure key management services - and seamless interoperability with different networks.

Crypto related activities would benefit from an exemption based reporting method due to their real time settlement capabilities and transaction speed.

Blockchain technology can make auditing a very transparent and automated process.

New risk and fraud detection tools can be used to block money launderers, cyber criminals and other bad actors

*Are there entities that currently satisfy the definition of qualified custodian under the Custody Rule that should not be included within that definition because they do not meet the policy goals of the rule? If so, which ones and why? Conversely, are there entities that currently do not satisfy the definition of qualified custodian but should? If so, which ones and why?*

Not aware of any.