Legislators and regulators continue to support digital transformation
In 2020, many state legislatures and state and federal regulators took proactive steps to encourage the use of digital technologies, whether that was through providing more detailed guidance on the regulatory side or by enacting new legislation. This Insight will focus, at a high level, on how legislatures and regulators endorsed the movement towards digital transformation in 2020 in various sectors and technologies, including cryptocurrencies, blockchain, and distributed ledger technologies, the use of electronic records and signatures, and remote online notarization.
Cryptocurrencies, blockchain, and distributed ledger technologies
In 2020, the Office of the Comptroller of the Currency (OCC) took a welcoming approach to cryptocurrencies in a variety of ways. First, in July 2020, the OCC published an interpretive letter clarifying national banks’ and federal savings associations’ authority to provide cryptocurrency custody services (see further coverage here). Second, in October 2020, the OCC published an interpretive letter addressing the authority of a national bank to deposits that serve as reserves for certain stablecoins. The OCC has followed this up in 2021 by (a) releasing an interpretative letter regarding when national banks’ and federal savings associations’ can participate in independent node verification networks (INVN) and use stablecoins to conduct payment activities and other bank-permissible functions (see more here); (b) conditionally approving the conversion of Anchorage Trust Company to Anchorage Digital Bank, National Association, which will allow Anchorage Digital Bank to provide “sub-custody services…for any traditional financial institution that wishes to give its clients access to digital assets”; and (c) conditionally approving the conversion of Protego Trust Company to Protego Trust Bank, National Association, which when it begins operating “will provide cryptocurrency custody services in a fiduciary capacity for its clients by holding the unique cryptographic keys associated with Bitcoin and Ethereum.”
Regarding states, in 2020, Wyoming approved Kraken’s application to become the a Special Purpose Depository Institution (SPDI). As the Wyoming Division of Banking notes on its website, “[i]t is likely that many SPDIs will focus heavily on digital assets, such as virtual currencies, digital securities and utility tokens.”
In 2021, states are continuing the trend and introducing bills related to the use of blockchain or distributed ledger technology. These bills range from developing working groups to make recommendations on the use of blockchain technology and report to the legislature (Hawaii House Bill No. 622, Texas HB 1576, Arizona HB 2544), revising their state Uniform Electronic Transactions Act (UETA) to specifically address smart contracts and distributed ledger technology (Iowa SSB 1207; see the author’s paper on whether such legislation is necessary here) or for New York, to revise its electronic signatures law to state the same (NY AB 3760, S01801); to provide for digital assets as property and to apply the uniform commercial code to digital assets (Idaho HB 181, Kentucky SB 177); to create special purpose depository institutions (Kentucky SB 178); or to create regulatory sandboxes (Oklahoma, SB 562).
Electronic records and signatures
States are seeking to expand (or more clearly establish) the ability for parties and persons to enter into contracts electronically. First, Illinois introduced legislation, HB 3205, to enact the UETA; to date, Illinois is one of two states that never adopted the UETA, with New York being the other (each has instead adopted its own non-uniform law on electronic records and signatures). Second, On February 10, 2021, SB 361 was introduced in California. SB 361 proposes to delete the exclusion in California’s UETA for certain California laws governing conditional sale or lease contracts for motor vehicles. Further, at least one state has introduced legislation regarding the use of electronic wills (Illinois SB 72).
Remote online notarization
In 2021, Wyoming became the 29th state to enact remote online notarization (RON) legislation in SF0029. Further, additional states continue to introduce legislation to enact RON in their states, such as New York (SB A00399, S01780), or revise existing RON laws, such as Arizona (SB 1115).
We will be tracking progress of these bills – and others that are sure to be introduced in the coming months – throughout the year.