Puerto Rico’s International Banks: Leading the Charge in Digital Asset Custody and Tokenization Services

In the rapidly evolving landscape of global finance, Puerto Rico stands out as a beacon for innovation, particularly through its International Financial Entities (IFEs) licensed under Act 273. These entities, often referred to as international banks, operate within the U.S. territory but cater primarily to non-resident clients, offering a unique blend of U.S. jurisdictional stability and flexible regulatory frameworks. For entrepreneurs and institutions looking to license, build, operate, and maintain compliance in such a bank, Act 273 provides a streamlined path that has become increasingly attractive in the digital age. A pivotal development in 2024 has positioned these smaller international banks to compete on a global stage: the explicit inclusion of digital asset custody in the law. This article explores how Puerto Rico’s IFEs are uniquely equipped to provide custody services for digital assets, alongside onramp and offramp functionalities, enabling them to tap into the burgeoning tokenization market projected to reach $18.9 trillion by 2033. We’ll draw on insights from Ripple’s recent emphasis on custody as core infrastructure, highlighting why Puerto Rico’s model outshines traditional U.S. domestic banking in this arena.

Understanding Act 273: The Foundation for International Banking in Puerto Rico

Enacted in 2012, Act No. 273-2012, known as the International Financial Center Regulatory Act, was designed to attract international financial services to Puerto Rico by creating a favorable environment for non-resident banking activities. Administered by the Office of the Commissioner of Financial Institutions (OCIF), the law allows for the establishment of IFEs that can engage in a wide array of services, including lending, investment advisory, brokerage, and now, crucially, custody of assets—provided they serve foreign clients and adhere to strict compliance protocols.

Licensing an IFE begins with submitting a detailed application to OCIF, including business plans, financial projections, and proof of minimum capital requirements (recently increased to $5 million in net worth as part of 2024 reforms). Once licensed, building the operation involves setting up robust infrastructure for anti-money laundering (AML), know-your-customer (KYC), and cybersecurity measures. Operations must focus on international clients, with prohibitions on serving Puerto Rican residents to maintain the “international” designation. Compliance is ongoing, requiring annual audits, reporting, and adherence to U.S. federal laws like the Bank Secrecy Act, while benefiting from Puerto Rico’s tax incentives—such as a 4% flat tax on income for qualifying activities.

What sets Act 273 apart is its adaptability. Unlike rigid federal banking charters in the mainland U.S., Puerto Rico’s framework allows for quicker innovation, making it ideal for emerging sectors like digital assets.

The 2024 Amendment: Embedding Digital Asset Custody into Law

In February 2024, Puerto Rico enacted significant reforms to Act 273 through House Bill 1699, signed into law as Act No. 44-2024. Among the updates—increasing license fees, enhancing capital requirements, and streamlining administrative processes—was a groundbreaking provision explicitly authorizing IFEs to provide custody services for digital assets and virtual currencies. Section 10, subsection (10) of the amended Act states that, upon obtaining a special permit from the Commissioner, an IFE may act as a custodian for property, including digital assets, but only for non-domestic persons.

This makes Puerto Rico one of the few jurisdictions worldwide where digital asset custody is not just permissible but codified into statute. Prior to this, custody of cryptocurrencies, tokens, and other digital assets was often a gray area, subject to interpretive guidance from regulators like the SEC or OCC in the U.S. mainland. In Puerto Rico, the law provides clarity: IFEs can securely hold, manage, and transfer digital assets on behalf of clients, integrating blockchain technology with traditional banking safeguards. This amendment, effective immediately upon enactment, positions Puerto Rico as a hub for crypto-friendly banking without the regulatory hurdles faced elsewhere.

For those building an IFE, this means incorporating specialized technology stacks—such as multi-signature wallets, cold storage solutions, and blockchain analytics tools—into operations from the outset. Compliance involves regular OCIF inspections, SOC 2 audits for cybersecurity, and alignment with global standards like those from the Financial Action Task Force (FATF). The result? A licensed entity that can offer institutional-grade custody, fostering trust in an industry plagued by past scandals like FTX.

From Custody to Onramps and Offramps: How Smaller IFEs Can Compete with Global Giants

Traditional custody services involve safeguarding assets, but in the digital realm, they extend to enabling seamless interactions with blockchain ecosystems. Puerto Rico’s IFEs can leverage their custody permissions to provide integrated onramp and offramp services—converting fiat currencies to digital assets (onramp) and vice versa (offramp)—catapulting smaller banks into the “big leagues” alongside giants like JPMorgan or Coinbase.

Onramp services allow clients to deposit fiat (e.g., USD) into an IFE account and convert it to cryptocurrencies or tokens via integrated exchanges or over-the-counter (OTC) desks. Offramps reverse this, enabling withdrawals back to traditional banking systems. Combined with custody, this creates a full-service ecosystem: clients can store assets securely, trade them, and liquidate as needed, all under one roof.

For smaller IFEs, this is a game-changer. Unlike massive global banks burdened by layers of federal oversight, Puerto Rico’s international banks operate with agility. With lower operational costs—thanks to tax incentives and a business-friendly environment—they can offer competitive fees, attracting high-net-worth individuals, family offices, and institutions seeking diversified custody options. Building such services requires partnerships with licensed crypto exchanges (e.g., via APIs from Kraken or Gemini) and compliance with U.S. sanctions lists, but the Act 273 framework simplifies this by focusing on international clients.

Operating these services demands robust risk management: implementing real-time monitoring for suspicious transactions, ensuring asset segregation, and maintaining insurance against hacks (e.g., through providers like Lloyd’s of London). Compliance teams must navigate evolving regulations, such as potential updates from the SEC on digital asset classifications, but Puerto Rico’s proactive stance provides a head start.

The $18.9 Trillion Opportunity: Ripple’s Insights on Tokenization and Custody

The importance of digital asset custody cannot be overstated, as evidenced by Ripple’s recent report highlighting it as “core infrastructure” for the tokenization market, projected to reach $18.9 trillion by 2033. Tokenization involves converting real-world assets (RWAs)—like real estate, bonds, or commodities—into blockchain-based tokens, enabling fractional ownership, 24/7 trading, and automated compliance. Ripple emphasizes that custody is the “backbone” of this ecosystem, driving stablecoin adoption, tokenized asset growth, and regulatory confidence.

According to Ripple’s insights, published on August 18, 2025, custody powers stablecoins, tokenized assets, and next-generation programmable infrastructure. A joint report with Boston Consulting Group (BCG) forecasts tokenized RWAs growing from $0.6 trillion today to $18.9 trillion by 2033, with a 53% CAGR. Custody ensures secure storage and management, essential for institutional adoption. Ripple’s own custody platform, enhanced by its 2023 acquisition of Metaco, exemplifies this, projecting the institutional crypto custody market to hit $10 trillion by 2030.

Puerto Rico’s IFEs are uniquely positioned to capitalize on this. Unlike traditional U.S. domestic banks, which face stringent OCC guidelines and often require separate charters for crypto activities (e.g., via SAB 121 for custody accounting), Act 273 IFEs can integrate custody directly. This agility allows them to serve as gateways for tokenization, offering custody for tokenized bonds or real estate while providing on/offramps for seamless fiat-digital conversions. Domestic U.S. banks, constrained by federal regulations and higher compliance costs, lag in innovation, often partnering with third parties rather than building in-house capabilities.

For IFE operators, this means focusing on compliance-by-design: embedding AML/KYC into custody protocols, ensuring asset segregation, and leveraging blockchain for transparent audits. The result? Smaller banks can attract a share of the $18.9 trillion pie, positioning Puerto Rico as a U.S.-based crypto hub rivaling Singapore or Switzerland.

Compliance and Operational Best Practices for Digital Asset Custody in Puerto Rico

Maintaining compliance under Act 273 is paramount. IFEs must obtain the special permit for custody, submit detailed policies on digital asset handling, and undergo OCIF reviews. Key practices include:

• Technology Integration: Use enterprise-grade wallets (e.g., Fireblocks or Ledger Enterprise) for multi-party computation (MPC) security.
• Risk Mitigation: Implement cyber insurance, regular penetration testing, and disaster recovery plans.
• Regulatory Alignment: Adhere to FATF recommendations on virtual assets, report suspicious activities via FinCEN, and monitor for sanctions evasion.
• Client Education: Provide resources on tokenization benefits, ensuring clients understand risks like market volatility.

By prioritizing these, IFEs not only stay compliant but also build trust, essential for scaling in the tokenization era.

Conclusion: Puerto Rico’s Edge in the Digital Finance Revolution

Puerto Rico’s international banks under Act 273 are not just participants in the digital asset space—they’re pioneers. The 2024 amendment codifying digital asset custody has unlocked doors to onramp/offramp services and tokenization, allowing smaller entities to compete globally. As Ripple underscores, custody is the linchpin for a $18.9 trillion market, and Puerto Rico’s flexible, U.S.-aligned framework gives IFEs a distinct advantage over cumbersome domestic U.S. banking models. For those considering licensing an IFE, now is the time: build with innovation in mind, operate with compliance at the core, and position your bank at the forefront of tokenized finance. Visit puertoricobanklicense.com for more guidance on navigating Act 273.