Pub.16 2021-22 Issue 2

NEBANKERS.ORG 12 What Does the Nebraska Financial Innovation Act Mean for Banks? COUNSELOR’S CORNER Gray Derrick and J. Scott Searl , Baird Holm, LLP O N MAY 25, 2021, GOVERNOR RICKETTS SIGNED THE Nebraska Financial Innovation Act (“NFIA” or the “Act”) into law, making Nebraska the second state, following Wyoming, to establish digital asset depositories. 1 NFIA authorizes the formation of digital asset depositories, either as a separate department of an existing financial institution or as a newly chartered digital asset bank, upon approval from the Nebraska Department of Banking and Finance (the “Department”). 2 Once approved, a digital asset depository can engage in certain services relating to digital assets (e.g., cryptocurrency). What Services Can a Digital Asset Depository Provide? Under NFIA, a digital asset depository can provide custody services for cryptocurrency (such as Bitcoin). Although not specifically addressed in NFIA, cryptocurrency custody services presumably mean a depository may hold the unique cryptographic keys associated with a customer’s virtual currency. Cryptographic keys are strings of data that lock or unlock encrypted digital asset data. Cryptocurrency owners have a public key that allows them to accept payments from other cryptocurrency users and a private key to prove ownership of the specific digital currency. Apart from providing custodial services, digital asset depositories may also: • Provide payment services upon a customer’s request; • Conduct non-lending digital asset banking business for customers, including facilitating the provision of borrowing or lending in which digital assets are borrowed, paid, or pledged to a lender in exchange for digital assets; • Issue stablecoin (cryptocurrency backed by a reserve asset such as being tied to the U.S. dollar) and hold stablecoin deposits at an FDIC-insured financial institution which has a main chartered office or branch in Nebraska; and • Use stablecoin and independent node verification networks for payment activities. NFIA also authorizes a financial institution to serve as a qualified custodian for a registered investment adviser subject to applicable SEC rules and additional rules and regulations adopted by the Department. How is a Digital Asset Depository created? NFIA establishes two ways to create a digital asset depository. Financial institutions 3 may apply for authority