Pub.16 2021-22 Issue 2

NEBRASKA BANKERS ASSOCIATION 13 COUNSELOR’S CORNER — continued on page 14 to operate a depository as a separate department within the financial institution. Although NFIA does not define what is required to maintain a “separate department,” it requires an amendment to an institution’s articles of incorporation to authorize the conduct of a digital asset depository business. Alternatively, five or more adult persons (including at least one Nebraska resident) may form a digital asset depository by applying to the Department to obtain a new charter. NFIA provides that a financial institution may invest up to 10% of its capital and surplus in a digital asset depository institution unless written approval to invest a higher percentage is obtained from the Department. The Act further provides that bank holding companies may apply to maintain a digital asset depository, subject to federal and state law. An application by a financial institution to form a department as a digital asset depository business or an application by individuals to create a newly chartered digital asset depository institution requires, in each case, the following: • A detailed business plan; • Estimated operating expenses for the first three years (with applicants seeking a new charter required to pay a surplus fund in such amount or other amount established by the Department); • A proposal for compliance with NFIA requirements; and • Payment of a $50,000 application fee. Applicants seeking a new charter must submit articles of incorporation, evidence of a minimum of $10 million capital stock (which must be solicited before the filing of an application and returned without loss if an application is denied), and identification of any investors holding 10% or more of the proposed institution’s equity. After a complete application has been filed, the Department will investigate the background of officers, directors and shareholders owning 10% or more of the applicant’s equity. A public hearing on the application will be held within 60 to 120 days after notice from the Department that the application is in order. 4 Within 90 days after receiving a public hearing transcript, the Department will decide on the application based on criteria outlined in NFIA. What Compliance Requirements Must Digital Asset Depositories Satisfy? NFIA includes several compliance requirements for digital asset depositories. Among other things, a digital asset depository must: • Maintain its main office and the primary office of its CEO in Nebraska; • Help meet the digital financing needs of communities in which it operates, and maintain and update a public file and its website(s) with information about its efforts to meet community needs; • Maintain unencumbered liquid assets of at least 100% of the digital assets in custody at all times; • Submit reports regarding the depository’s condition (such reports shall be made publicly available, with the Department having the ability to impose a fee of $5,000 for each day a report is overdue); • Be subject to examination to determine the depository’s condition and resources, mode of managing the depository’s affairs, actions of its officers and directors in the investment and disposition of funds, the safety and prudence of digital asset depository management, compliance with NFIA and other matters as the Department may require; • Furnish a surety bond or pledge assets in an amount determined by the Department to be sufficient to cover the costs of liquidation or conservatorship; • Maintain appropriate insurance or a bond covering operational risks of the digital asset depository, which must include coverage for directors’ and officers’ liability, errors and omissions liability, and information technology infrastructure and activities liability; and • Pay an assessment (as determined by the Department and approved by the Governor) which shall offset costs of supervision and administration of the Act. In addition, digital asset depositories must adhere to several customer-facing requirements, including: • The customer must provide sufficient evidence to the depository that it will comply with the anti-money laundering, Cryptographic keys are strings of data that lock or unlock encrypted digital asset data.