as the priority of their security interest. UCC-9 has now been updated to reflect these new rules. Like non-electronic accounts and payment intangibles, lenders may perfect their security interest in CERs either by establishing control or by filing a financing statement. However, control prevails in a priority battle vs. a financing statement on its own. (UCC 9-331). Other important considerations in the new UCC provisions are the take-free and the governing law rules. The take-free rules of UCC-9 are akin to the “holder in due course” rules from UCC Article 3 (UCC-3). “Qualifying purchasers” take priority over an earlier security interest, even if perfected. (UCC 12-104(e)). And, under the governing law provision, if there is no logical jurisdiction, the parties to the agreement may choose the jurisdiction. If no jurisdiction is agreed to, the governing law will be the District of Columbia. (UCC 12-107(c)). Banks that have delved into crypto-assets are likely familiar with the Joint Statement on Crypto-Asset Risks to Banking Organizations released earlier this year, which reiterates the Agencies’ position “that issuing or holding as principal cryptoassets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices. Further, the agencies have significant safety and soundness concerns with business models that are concentrated in cryptoasset-related activities or have concentrated exposures to the crypto-asset sector.” Of course, this statement was viewed as a response to the November 2022 downfall of FTX. Suffice to say, the Agencies expect a good deal of partnership and cooperation with them when proposing, and prior to beginning, new cryptoasset-related activities. So, banks now have a little guidance regarding risk-weighting crypto-assets, a little guidance from the Agencies, and a little guidance from the UCC (at least in some states). What’s next? Banks should continue to monitor these changes in their applicable jurisdictions, particularly banks that have already begun to enter the crypto-asset space. Consider how these ASSURANCE / TAX / ADVISORY forvis.com Moving FORward requires VISion FORVIS is a forward-thinking professional services firm committed to unmatched client experiences. We anticipate our client’s needs and outcomes, preparing them for what’s next by offering innovative solutions. Created by the merger of BKD and DHG — a merger of equals — FORVIS has the enhanced capabilities of an expanded national platform and deepened industry intelligence. With greater resources and robust advisory services, FORVIS is prepared to help you better navigate the current and future dynamic organizational landscape. We are FORVIS. Forward vision drives our unmatched client experiences. Introducing FORVIS, forward vision from the merger of BKD and DHG FORVIS is a trademark of FORVIS, LLP, registration of which in the U.S. Patent and Trademark Office is pending. changes will affect existing loan agreements, including the grace period in Article 13 (UCC-13) to renegotiate pre-existing loan agreements regarding the method of perfection. Policies, procedures and training should be updated to reflect the bank’s position on crypto-asset lending and custody services, even to simply state that the bank does not engage in crypto-asset activities. Contemplate and implement the requisite security standards and vendors for custody of CERs, controllable accounts, and controllable payment intangibles. Review the tax consequences and reporting obligations for crypto-asset transactions. Identify the risks associated with future laws and regulations that will affect the bank’s loan agreements and other services, and design controls and contract language to mitigate those risks to the extent possible. Theodore Kelly serves as Associate General Counsel for Compliance Alliance. He holds a Bachelor’s Degree in Political Science from The Ohio State University, a Master’s in Business Administration from Franklin University, and a Juris Doctor from Capital University Law School. Theo began his professional career serving in the United States Marine Corps in communications security and, later, the Ohio Army National Guard as a Military Police Platoon Leader. More recently, Theo served as first-line of defense at the largest bank in the world from 2015-2017 and led Ethics & Compliance operations at a Texas-based Fortune 500 company from 2017-2021. Policies, procedures and training should be updated to reflect the bank’s position on crypto-asset lending and custody services, even to simply state that the bank does not engage in cryptoasset activities. 16 Nebraska Banker
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