(1) The provisions of this section are cumulative and not exclusive as an optional framework for enhanced supervision of controllable electronic record custody.
(2) If a financial institution is authorized to provide digital asset services under this section, it shall comply with all provisions of this section.
(3) A financial institution may serve as a qualified custodian, as specified by the United States Securities and Exchange Commission in 17 C.F.R. 275.206(4)-2 or any other federal rule or regulation. In performing custodial services under this section, a financial institution shall:
(a) Implement all accounting, account statement, internal control, notice, and other standards specified by applicable state or federal law and rules for custodial services;
(b) Maintain information technology best practices relating to controllable electronic records held in custody. The director may specify required best practices by rule and regulation;
(c) Fully comply with applicable federal anti-money laundering, customer identification, and beneficial ownership requirements; and
(d) Take other actions necessary to carry out this section, which may include exercising fiduciary powers similar to those permitted to national banks and ensuring compliance with federal law governing controllable electronic records classified as commodities.
(4) A financial institution providing custodial services shall enter into an agreement with an independent public accountant to conduct an examination conforming to the requirements of 17 C.F.R. 275.206(4)-2(a)(4) and (6), at the cost of the financial institution. The accountant shall transmit the results of the examination to the director within ninety days of the examination and may file the results with the United States Securities and Exchange Commission as its rules may provide. Material discrepancies in an examination shall be reported to the director within one day. The director shall review examination results upon receipt within a reasonable time and during any regular examination conducted under section 8-108.
(5) Controllable electronic records held in custody under this section are not depository liabilities or assets of the financial institution. A financial institution or a subsidiary may register as an investment adviser, investment company, or broker dealer as necessary. A financial institution shall maintain control over a controllable electronic record while in custody. A customer shall elect, pursuant to a written agreement with the financial institution, one of the following relationships for each controllable electronic record held in custody:
(a) Custody under a bailment as a nonfungible or fungible asset. Assets held under this subdivision shall be strictly segregated from other assets; or
(b) Custody under a bailment pursuant to subsection (6) of this section.
(6) If a customer makes an election under subdivision (5)(b) of this section, the financial institution may, based only on customer instructions, undertake transactions with the controllable electronic record. A financial institution maintains control pursuant to subsection (5) of this section by entering into an agreement with the counterparty to a transaction which contains a time for return of the asset. The financial institution shall not be liable for any loss suffered with respect to a transaction under this subsection, except for liability consistent with fiduciary and trust powers as a custodian under this section.
(7) A financial institution and a customer shall agree in writing regarding the source code version the financial institution will use for each controllable electronic record and the treatment of each record under the Uniform Commercial Code, if necessary. Any ambiguity under this subsection shall be resolved in favor of the customer.
(8) A financial institution shall provide clear, written notice to each customer and require written acknowledgement of the following:
(a) Prior to the implementation of any updates, material source code updates relating to controllable electronic records held in custody, except in emergencies which may include security vulnerabilities;
(b) The heightened risk of loss from transactions under subsection (6) of this section;
(c) That some risk of loss as a pro rata creditor exists as the result of custody as a fungible asset or custody under subdivision (5)(b) of this section;
(d) That custody under subdivision (5)(b) of this section may not result in the controllable electronic records of the customer being strictly segregated from other customer assets; and
(e) That the financial institution is not liable for losses suffered under subsection (6) of this section, except for liability consistent with fiduciary and trust powers as a custodian under this section.
(9) A financial institution and a customer shall agree in writing to a time period within which the financial institution must return a controllable electronic record held in custody under this section. If a customer makes an election under subdivision (5)(b) of this section, the financial institution and the customer may also agree in writing to the form in which the controllable electronic record shall be returned.
(10) All ancillary or subsidiary proceeds relating to controllable electronic records held in custody under this section shall accrue to the benefit of the customer, except as specified by a written agreement with the customer. The financial institution may elect not to collect certain ancillary or subsidiary proceeds, as long as the election is disclosed in writing. A customer who makes an election under subdivision (5)(a) of this section may withdraw the controllable electronic record in a form that permits the collection of the ancillary or subsidiary proceeds.
(11) A financial institution shall not authorize or permit rehypothecation of controllable electronic records under this section and shall not engage in any activity to use or exercise discretionary authority relating to a controllable electronic record except based on customer instructions.
(12) A financial institution shall not take any action under this section which would likely impair the solvency or the safety and soundness of the financial institution, as determined by the director after considering the nature of custodial services customary in the banking industry.
(13) To offset the costs of supervision and administration of this section, a financial institution which provides custodial services under this section shall pay the assessment as provided for in sections 8-601 and 8-605, which assessment shall not be less than two thousand dollars, and the costs of any examination or investigation as provided in sections 8-108 and 8-606.
(14) For purposes of this section, financial institution means a bank, savings bank, building and loan association, savings and loan association, whether chartered by the United States, the department, or a foreign state agency; or a trust company.