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National banks can engage in certain cryptocurrency, distributed ledger, and stablecoin activities, but only after they have received a non-objection from their supervisory office.
Following months of review, the Office of the Comptroller of the Currency (OCC) has now decided the fate of the controversial Trump-era interpretive letters that allowed national banks to engage in certain cryptocurrency activities.
The letters were issued by then-acting comptroller, Brian Brooks, who, during his seven-month tenure at the OCC, took various steps to encourage banks to embrace certain cryptocurrency and stablecoin activities.
In three interpretive letters published last July, September and January 2021, Brooks clarified that national banks can provide certain cryptocurrency custody services on behalf of customers, can hold reserves for stablecoins that are backed on a 1:1 basis by a single fiat currency and held in hosted wallets, and may use distributed ledgers and stablecoins to engage in and facilitate payment activities.
In a fourth letter, Brooks expanded the scope of entities eligible to apply for a national trust charter, by removing a requirement that applicants engage in fiduciary activities. This letter enabled Brooks to approve the application of Anchorage Digital Bank as the first national crypto bank on the day he stepped down.
These letters received high criticism, with many claiming the services described were too far away from the core business of banking. In addition, some argued these interpretations represented a significant shift from the previous practices and did not go through the required statutory rulemaking process.
As soon as the current acting comptroller, Michael Hsu, took office, he told Congress that he was halting all pending crypto charter decisions, and his office is looking at the interpretive letters.
“My broader concern is that these initiatives were not done in full coordination with all stakeholders. Nor do they appear to have been part of a broader strategy related to the regulatory perimeter,” he said.
Following months of review, the OCC has now confirmed that the activities described in the letters are “legally permissible for national banks ... , provided the bank can demonstrate, to the satisfaction of its supervisory office, that it has controls in place to conduct the activity in a safe and sound manner.”
Banks must inform their supervisory office before they engage in any of these crypto-related activities, and can move ahead with their plans only after they receive a no-objection letter from that office.
In the evaluation, the office will assess the adequacy of a bank’s risk management systems and controls.
“Today's letter reaffirms the primacy of safety and soundness. Providing this clarity will help ensure that these cryptocurrency, distributed ledger, and stablecoin activities will be conducted by national banks and federal savings associations in a safe and sound manner,” acting comptroller Hsu said.
“Because many of these technologies and products present novel risks, banks must be able to demonstrate that they have appropriate risk management systems and controls in place to conduct them safely. This will provide assurance that crypto-asset activities taking place inside of the federal regulatory perimeter are being conducted responsibly,” he added.
Further clarity expected in 2022
The agency also addressed the OCC’s standards for chartering: “[T]he OCC retains discretion to determine if an applicant’s activities that are considered trust or fiduciary activities under state law are considered trust or fiduciary activities for purposes of applicable federal law.”
The OCC emphasized that “an applicant’s activities will not automatically be deemed to be trust activities — or to be fiduciary activities — solely by virtue of state law.”
Together with the interpretive letter, the OCC, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) released a joint statement on the agencies’ ongoing Crypto-Asset Policy Sprint Initiative.
After conducting a series of interagency “policy sprints” focused on crypto-assets, the agencies found that further clarity is needed in a number of areas.
Therefore, in 2022, the agencies will provide greater clarity on whether certain bank activities related to crypto-assets are legally permissible, and what the expectations are for safety and soundness, consumer protection, and compliance with existing laws and regulations.
