Proposed legislation in Hawaii would allow banks to serve as cryptocurrency custodians

HONOLULU (Heartland Newsfeed) — Proposed legislation in Hawaii’s state legislature could change the banking system, allowing for the storage and custody of cryptocurrency.

Senate Bill 2594 was filed and introduced in the Hawaii Senate with bipartisan support. The legislation would make it legal for banking institutions in the state to hold “digital securities,” “virtual currencies,” “digital consumer assets” and other “open blockchain tokens” for their customers and allow the court system to hear cases on digital asset claims.

Democratic Sens. Gil Riviere, Sharon Moriwaki, Stanley Chang and Les Ihara, along with Republican Sen. Kurt Fevella are co-sponsors of the bill.

If passed through the legislature and signed into law by Gov. David Ige, it could clear the way for banks to offer digital services alongside traditional banking services in the Aloha State.

Banks in the United States have balked at touching digital assets such as Bitcoin, Ethereum and other cryptocurrencies, citing fears of uncertainties surrounding regulations and assets that could be linked to illicit activities which could mean litigious issues down the road.

However, the legislation would create for further issues, resulting in the shuttering of more crypto-focused money services as financial regulations have made it more difficult to function. The state’s Division of Financial Institutions currently require crypto-licensed entities to hold fiat currency reserves equal to that of virtual currency holdings.

The decision which resulted in Coinbase shutting down operations in Hawaii in 2017, according to a Coindesk report.

Coinbase considered the regulation as the “double reserve” problem and it appears this legislative effort will not resolve this issue, but it will allow for some legal clarity to the banking system in the state.

Banking institutions in Hawaii will be able to pay a $1 annual fee to participate in their low-cost, (sometimes) pro-consumer custodial system, but it requires each institution hires an independent accountant to examine their digital holding books.

Customers will have the ability to authorize custodial institutions to make transactions using digital assets and will need to consent to a “source code” the banks will utilize, given the stipulation that any statutory obscurities end up in favor of the customers.