In recent months, the Federal Office of the Currency Controller (OCC) has reported a more authorized regulatory position towards national banks and federal savings associations (collectively, banks) engaging in crypto-active activities. “I will continue to work with diligence to ensure that the regulations are effective and not excessive, while maintaining a solid federal banking system,” said the acting controller Rodney E. Hood earlier this year.
On March 7, the OCCT started to formalize its discrepancy in its approach to the Biden era to regulate the activities of the cryptocurrency of banks with the issuance of the letter of interpretation 1183. Thanks to this letter of interpretation, the OCC has canceled its process of non-object of supervision for banks that seek to do cryptocurrency activities, thus deleting significant banking capacities to do it. This letter of interpretation also reaffirmed the previous directives of the West allowing banks to engage in a range of crypto-active activities.
The occurrence followed this action in May with the letter of interpretation 1184. In this document, the OCC has confirmed that banks can engage in certain cryptocurrency activities and approach the roles of third -party service providers – such as power companies – can play in these activities. The letter of interpretation was generally favorable to the involvement of third parties.
The main dishes to remember:
- The OCC will no longer oblige banks to undergo a supervision non-objection process (see the definition below) before offering products and services relating to cryptographic assets to their customers. Banks regulated by the West can now offer Crypto-Aset products and services without the need to demonstrate first that they have adequate compliance processes in place.
- The abolition of this process considerably reduces obstacles to Crypto-Aset banking activities which become more widespread. However, supervision expectations apply. The OCC will probably still use supervision exams to verify whether the banks have implemented solid controls to manage the risks associated with crypto-active activities.
- The OUC has also confirmed that banks can provide Crypto-Aset police custody, hold funds as a stable reserves and provide certain floors payment services, including acting as a nodes for registers distributed in relation to the verification of customer payments and facilitate payment transactions on a distributed register.
- With regard to at least crypto-active police custody services, the OCC has confirmed that banks can use third-party subgardians to provide childcare services, subject to appropriate third party management practices.
- Banks interested in offering Customers’ Customers and Services to examine the existing directives of the OCS to identify obligations and expectations of compliance. Expect that the WCI directives are evolving as the activities of cryptocurrency mature and gain in broader adoption in the banking sector.
- Given that crypto-active activities are still new in the banking sector, banks can benefit from a proactive approach to identify appropriate controls and processes to manage the risks associated with crypto-active products and services.
What recent letters of interpretation do
The recent letters of interpretation of the WCI indicate a distance from the most prudent and restrictive approach adopted by the agency under the Biden administration and the confidence of the WCI in the capacities of banks to manage the risks associated with crypto-active activities. They reaffirm that banks are authorized to engage in certain crypto-active activities and expressly allow third-party service operators to provide police custody services (to be “sub-garders”). They also give banks a green light to explore the opportunities of cryptocurrencies, because such opportunities can occur by eliminating the process of non-objection of supervision adopted for the first time in 2021.
Previously, the capacity of a bank to engage in crypto-active activities was limited by a supervision process not object adopted in 2021 which forced the banks to obtain the tacit approval of the WOD before engaging in such activities. The recent letters of interpretation of the WC have eliminated this process of non-object of supervision.
What crypto-active activities are authorized?
- Letter of interpretation 1170 – Allows banks to provide police custody services for cryptocurrencies to customers with fiduciary and non -fiduciary capacities in the context of their traditional and guarding activities.
- Letter of interpretation 1172 – allows banks to receive and have deposits of stablecoin issuers, including staboin reserves associated with hosted wallets.
- Letter of interpretation 1174-Authorizes banks to engage in certain activities related to payment involving standards, in particular by acting as nodes for a network of verification of independent nodes (that is to say,, A large distributed book) as part of the verification of customer payments and the facilitation of payment transactions on a large distributed book.
In its recent letters of interpretation, the OCC has reaffirmed that these Crypto-Aset activities are always authorized banking activities. The OCC has also expressly confirmed that banks can use third parties, which indicates that the WC could also support third-party service providers also participating in other banking crypto-active activities.
What was the process of non-OPC supervision?
As part of the letter of interpretation now resolved 1179, banks seeking to engage in cryptocurrency activities were necessary to inform their OCS supervision office and obtain written non-objection before proceeding.
Non-object letters would only be issued if the bank could demonstrate, to the satisfaction of the supervision office, according to which it had implemented adequate risk management processes to identify, measure, monitor and control the potential risks associated with its planned crypto-active activities.
In addition, banks have had to show a clear understanding of the laws applicable to its activities provided for on crypto assets, such as federal securities, anti-flowing laws and consumer protection laws.
The elimination of this supervision non-objection process removes an important regulatory obstacle to the capacities of banks to engage in crypto-active activities. However, its deletion does not absorb banks of their responsibility to effectively manage the risks associated with these activities.
Risk management of crypto-skates in the future
In the future, these activities will be examined by the WCI as part of its regular supervision process. This means that banks engaging in crypto-active activities must always guarantee that these activities are carried out safe, healthy and fair and in accordance with the applicable law. If a third -party service provider – like a fintech company – will be involved, banks will also have to implement appropriate third party management practices.
By eliminating the non -compulsory supervision barrier, the OCC has granted greater responsibility on banks to implement appropriate appropriate risk management frameworks. They can find easier to integrate products and services related to crypto in their offers.
However, the OUC will probably expect the banks to implement solid controls to manage the risks associated with these activities in accordance with those described in the previous letters and advice of interpretation of the OCC. For example:
- Crypto -ASET – OCC police custody has declared that solid safety controls are necessary to avoid mismanagement of cryptographic keys, which can cause irremediable losses. The West recommends double orders, segregation of secure tasks and storage solutions (for example, cold wallets) to avoid unauthorized access, as well as robust audit procedures for effective management of cryptographic keys.
- Holding Stablecoin reserves – OCC has highlighted the risks of liquidity and compliance with the regulations applicable in capital and liquidity as the main areas of concern, in particular if the reserve balances do not line up with the stable -coxins pending. Consequently, if they hold Stablecoin reserves, banks must maintain the daily reserve verification requirements which guarantee support 1: 1 of the stablecoin by Fiat, and they must also establish contractual restrictions with stablecoin transmitters to ensure that the redemptions do not exceed the available reserves.
- Stablecoin payment activities-The OUC expects banks to deal with anti-whiteness risks, cybersecurity, fraud and consumer protection associated with cryptocurrency activities related to payments by developing sufficient technological expertise to manage the complexity of blockchain transactions in complete safety and in accordance with applicable law of these transactions.
Banks engaged in crypto-active activities should line up with these expectations. However, crypto-active activities are relatively new compared to traditional banking activities, and the questions of conformity they raise may not yet be fully understood. The expectations of the security and solidity of the West can evolve and new legislation can modify applicable laws. Staying up to date on the regulatory landscape surrounding cryptocurrency activities is probably the key to the banks committed to it.
Banks engaged in Crypto-Asset activities may be able to keep one step in advance on new regulatory developments by adopting a proactive approach to manage these risks, for example by developing robust governance frameworks to prevent regulatory gaps and engage with regulators and industry to shed light on supervision expectations.
