HomeBankingNebraska passes bill to establish regulatory system for digital assets

Nebraska passes bill to establish regulatory system for digital assets

The midwestern US State Nebraska on May 20 passed a legislation to establish state level regulatory mechanism to regulate digital assets including Bitcoin, on a 46-2 vote. The Legislature Bill 649 was introduced by Norfolk Sen. Michael Flood in January 2021 and was advanced this month. The bill allows two pathways for managing digital currency: a state-chartered bank may create a digital asset division or a digital asset depository may be created under a new charter. Both the entities are regulated by the state Department of Banking and Finance.

The chairperson of the Banking, Commerce and Insurance Committee Sen. Matt Williams of Gothenburg, said national banks already manage digital assets but state banks in Nebraska currently cannot. According to the Senator, the bill was the result of extensive negotiations with stakeholders in the banking community and would provide ample consumer protections. The enactment will be known as Nebraska Financial Innovation Act, once approved by the Governor.

Key features of the Nebraska LB 649:

Among other provisions, the bill would:
• establish procedures for incorporation, operation, liquidation and dissolution of digital asset depository institutions;
• prohibit digital depository institutions from taking deposits or lending in fiat;
• require a digital depository’s headquarters and office of the chief executive officer to be established in Nebraska;
• allow digital depositories to be held by a bank holding company and allow existing bank investment in such a depository;
• require notice to customers that accounts are not insured by the Federal Deposit Insurance Corporation if applicable;
• require a surety bond or pledged investments and specified private insurance; and
• authorize digital depositories to obtain federal deposit insurance if available.

Transactions to be in compliance with AML guidelines:

Customers can maintain an account with digital asset depository only after making sufficient evidence available to the digital asset depository to enable compliance with anti-money laundering, customer identification, and beneficial ownership requirements, as determined by the Federal Bank Secrecy Act guidance and the policies and practices of the institution.

The name of the proposed digital asset depository institution must carry the words “digital asset bank” and not just “bank”. Traditional banks opposed the use the term “bank” by the digital asset repositories without any qualifiers. The official timeline of the bill can be accessed here.

Once approved by the Governor, Nebraska will become the second US State to regulate digital assets. The first state was Wyoming, which chartered its first institution in September, last year. Kraken, a crypto currency exchange had received approval to establish Kraken Financial, the first Special Purpose Depository Institution (SPDI) in the state of Wyoming in September 2020.

Kumar manages the tech backend at Crypto Vakil. He intends to work at the intersection of law and technology.

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