Scoop: National U.S. Banks Get the Green Light for Crypto
Traditional banks granted permission to manage customer cryptocurrencies, with the option to delegate task to third parties as well.
Driving the narrative...
The Office of the Comptroller of the Currency (OCC) has given a green light to national U.S. banks under its jurisdiction, enabling them to dive headfirst into the crypto world. This newfound freedom includes buying, selling, and managing crypto assets currently held in custody.
Banks can now act on their customers' instructions and outsource the hefty tasks of crypto custody and execution to trusted third-party providers.
Acting Comptroller Rodney E. Hood broke down the ground-breaking changes in an interpretive letter issued last Wednesday.
A New Era for Crypto and Banking
Two weeks ago, the Federal Reserve joined forces with the Federal Deposit Insurance Corporation (FDIC) to withdraw supervisory letters that had previously required banks to obtain prior approval for engaging in crypto. This move effectively turned the tables on the controversial "Choke Point" practices that had been hampering the crypto industry's reputation.
The OCC's latest directive builds upon its own previous effort, Interpretive Letter 1170, initially issued in July 2020. This groundbreaking document established banks' authority to provide crypto custody services. The OCC characterized such activities as "a modern form" of traditional banking.
Although the OCC showed initial openness, its stance was later softened in 2021-2022, under a new administration. The OCC, in collusion with the Federal Reserve and FDIC, issued guidance mandating banks to obtain a written non-objection before participating in crypto activities. This policy put the brakes on institutional crypto adoption. That policy has now been thrown into reverse.
The Race to Adopt Crypto
As more traditional financial institutions focus on breaking into the crypto market while avoiding the construction of intricate infrastructures from scratch, critics, such as President Donald Trump's son Eric, view some opposing banks as "broken, slow, and excessively expensive."
In the meantime, the OCC's latest affirmation comes hot on the heels of its earlier interpretive letter 1183 from March, where the office reiterated its stance on crypto-asset custody, distributed ledger, and stablecoin activities. The OCC termed these sections as "crypto-asset activities" and emphasized that banks could develop and engage with these activities, as long as it was done in accordance with safe risk management practices.
Not to be left out, the FDIC followed suit shortly after, with Acting Chairman Travis Hill declaring they were "turning the page on the flawed approach of the past three years."
Sources:
[1] OCC Interpretive Letter 1170 https://www.occ.gov/publications-and-resources/supervision-regulations-and-guidance/interpretive-letters/2020-issa-interp-letter-1170.html[2] Federal Reserve Statement on Supervision of Banking Organizations Engaging in Activities Related to Crypto assets https://www.federalreserve.gov/publications/files/2021-02-18_supervision-crypto-assets.pdf[3] FDIC issuing explicit guidance for crypto activities by banks https://www.fdic.gov/news/news/financial/2023/fil23003.htm[4] Blockchain Technology and Crypto Assets https://www.occ.gov/topics/complex-institutions/bank-supervision/cloud-computing-and-outsourcing/blockchain-technology-and-cryptocurrency/[5] OCC Provides Interpretive Letter on Crypto-Asset Activities https://www.occ.gov/news-issuances/news-releases/2023/nr-occ-2023-53.html
Written for you by Sebastian Sinclair
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- Following the OCC's recent interpretive letter, national U.S. banks are now authorized to engage in various cryptocurrency activities, such as buying, selling, and managing digital assets.
- Banks can now carry out customers' instructions related to cryptocurrency and outsource the cumbersome tasks of crypto custody and execution to third-party providers.
- The latest directive by the OCC, in conjunction with the Federal Reserve and FDIC's previous moves, marks a significant turning point in the ongoing relationship between traditional finance and the crypto market, particularly in terms of stablecoin and distributed ledger technology.
- As more traditional financial institutions expand into the cryptocurrency market, they aim to avoid building complex infrastructure from scratch, while some critics argue that opposing banks are outdated, slow, and expensive.
- The OCC, in its ongoing efforts to regulate cryptocurrency and digital asset activities, has reiterated its stance on crypto-asset custody, distributed ledger, and stablecoin activities, emphasizing that these activities can be developed and engaged with, so long as they are done according to safe risk management practices.
