In recent months, the Federal Office of the Comptroller of the Currency (Occ) has indicated a more permissible regulatory position towards national banks and federal savings associations (collectively, banks) that are dedicated to cryptocurrency activities. “I will continue working diligently to ensure that the regulations are effective and not excessive, while maintaining a strong federal banking system,” said the interlorm comptroller of the Rodney currency E. Hood earlier this year.
On March 7, the West began to form its change in its Biden era approach to regulate the activities of cryptocurrency assets of the banks with the issuance of the interpretive letter 1183. Through this interpretive letter, the OCS rescinded its non-objections of supervision for banks that seek to participate in crypto-accusing ascent activities, thus eliminating significant escapes around their significant Banks This interpretive letter also reaffirmed the previous orientation of the OCC allowing banks to participate in a variety of cryptographic asset activities.
The West followed this action in May with the interpretive letter 1184. In it, the West also confirmed that banks can participate in certain activities of cryptographic assets and address the roles of third -party service providers, such as Fintech companies, can play in those activities. The interpretive letter generally supported the participation of third parties in them.
Key control:
- The OSH will no longer require banks to undergo a non -objection process (see the definition below) before offering products and services related to cryptographic assets for their customers. Banks regulated by the OPS can now offer cryptographic asset products and services without first demonstrating that they have adequate compliance processes.
- Eliminating this process significantly reduces barriers so that crypto-active banking activities are generally. However, supervision expectations are still applied. It is likely that the Occ still use supervision exams to verify if the banks have implemented solid controls to manage the risks associated with cryptographic assets activities.
- The West also confirmed that banks can provide cryptocurrency allocation custody services, maintain funds such as Stablecoins reserves and provide certain payment services related to Stablecoins, including acting as nodes for book books distributed in relation to the verification of customer payments and facilitate payment transactions on a distributed sign.
- With respect to at least crypto-active custody services, the OCS has confirmed that banks can use third-party subcustodes to provide custody services, subject to appropriate third-party risk management practices.
- Banks interested in offering Cryptographic Assets and Services to customers must review the existing OCC Guide to identify compliance obligations and expectations. Wait that the orientation of the OCS evolves as crypto-active activities mature and obtain broader adoption in the banking industry.
- Because crypto-active activities remain novel in the banking industry, banks can benefit from adopting a proactive approach to identify appropriate controls and processes to manage the risks associated with crypto-active products and services.
What recent interpretive letters do
The recent interpretive letters of the OCT indicate a change in the most cautious and restrictive approach adopted by the agency under the Biden administration and the confidence of the Occ in the skills of the banks to manage the risks associated with the activities of the crypto-activities. They reaffirm that banks can participate in certain crypto-active activities and expressly allow third-party service operators to provide custody services of cryptographic assets (to be “subcustodes”). They also give banks a green light to explore opportunities for cryptographic assets, since such opportunities can arise by eliminating the process of non -objection of supervision adopted for the first time in 2021.
Previously, the ability of a bank to participate in cryptographic asset activities was limited by a non -objection process adopted in 2021 that required banks to obtain tacit approval of the West before participating in such activities. The recent interpretive letters of the OSH eliminated this process of non -objection of supervision.
What crypto-active activities are allowed?
- LETTER OF INTERPRETATION 1170-PERMIT TO BANKS Provide crypto-active custody services to customers in fiduciary and non-fiduciary capacities as part of their traditional activities of custody and custody.
- LETTER OF INTERPRETATION 1172: It allows banks to receive and maintain deposits of the stablecoin issuers, including reserves for Stablcoins associated with housed wallets.
- LETTER OF INTERPRETATION 1174: Authorizes banks to participate in certain activities related to the payment involving Stablecoins, including action as nodes for an independent node verification network (that is,, a distributed older book) in relation to the verification of customer payments and facilitate payment transactions in a distributed major book.
In its recent interpretive letters, the Occ reaffirmed that these activities of crypto-active assets are still allowed banking activities. The OCC also expressly confirmed that banks can use third parties, indicating that the OSH could also support external service providers participating in other activities of cryptographic assets of banks.
What was the process of non -objection of the OCC?
According to the interpretive letter now revised 1179, the banks that sought to participate in crypto-active activities had to notify their Occ and obtain a written non-objection before continuing.
The non -objection letters would be issued only if the bank could demonstrate, to the satisfaction of the supervision office, which had adequate risk management processes to identify, measure, monitor and control the potential risks associated with its planned transmission activities.
In addition, banks had to show a clear understanding of the laws applicable to their planned activities of crypto-active assets, such as federal laws of values, laws against money laundering and consumer protection laws.
The elimination of this supervision non -objection process eliminates a significant regulatory barrier for banks’ skills to participate in cryptographic asset activities. However, its elimination does not acquit the banks of your responsibility to effectively manage the risks associated with these activities.
Crypto-Active Risk Management in the future
In the future, the West will review these activities as part of its regular supervision process. That means that banks participating in cryptographic asset activities must still ensure that such activities are carried out safely, solidly and fairly and compliance with the applicable law. If a third -party service provider, such as a Fintech company, will participate in them, banks are expected to also implement appropriate risk management practices of third parties.
By eliminating the non -objection barrier of supervision, the OSC has put a greater responsibility in the banks to implement the integral framework of comprehensive risk management. It is possible that they find it easier to integrate products and services related to cryptographic in their offers as a result.
Even so, the West will probably expect banks to implement solid controls to administer the risks associated with these activities consisting of those described in the previous interpretive letters and guidance of the Occ. For example:
- Cryptographic custody services: The Occ has declared that strong security controls are needed to avoid poor management of cryptographic keys, which can lead to irremediable losses. The OCC recommends dual controls, segregation of safe duties and storage solutions (eg, cold wallets) to avoid unauthorized access, together with robust audit procedures for effective cryptographic key management.
- Stablecoin reservoir retention: The OCS has highlighted the risks of liquidity and compliance with applicable capital and liquidity regulations as main areas of concern, particularly if reserve balances are not aligned with the stables pending. Consequently, if they have Stablecoin reservations, banks must maintain the daily reserve verification requirements that guarantee a 1: 1 backup by Fiat, and must also establish contractual restrictions with Stablecoin issuers to ensure that redemption obligations do not exceed available reserves.
- Stablecoin payment activities: The West expects banks to address the risks of protection against money laundering, cybersecurity, fraud and consumer protection associated with cryptocurrency activities related to payments through the development of sufficient technological experience to manage the complexity of blockchain transactions safely and compliance with applicable laws, particularly given the nature potential pseudo-anonymous of such transactions.
Banks involved in crypto-active activities should align with these expectations. However, crypto-active activities remain relatively innovative compared to traditional banking activities, and compliance questions that are still fully understood. The security and solidity expectations of the West can evolve and the new legislation can alter the applicable laws. Keeping up to the regulatory landscape surrounding the activities of cryptographic processes is probably key to the banks that participate in them.
Banks that participate in crypto-active activities can be maintained at the forefront of the new regulatory developments by adopting a proactive approach to manage these risks, such as the development of solid government frameworks to prevent regulatory gaps and interact with regulators and industry to inform supervision expectations.
