OCC Chief Counsel Clarifies Bank Authority to Engage in Crypto

On November 18, the Chief Counsel of the Workplace of the Comptroller of the Foreign money (OCC) issued a fourth interpretive letter (Letter 1179) concerning whether or not it’s permissible for nationwide banks and federal financial savings associations to have interaction in sure cryptocurrency, distributed ledger, and stablecoin actions.  The letter clarifies ambiguities in the earlier three letters together with the authority of a financial institution to have interaction in sure cryptocurrency actions and the authority of the OCC to constitution a nationwide belief financial institution.

The primary letter, Interpretive Letter 1170, concluded that banks could present sure cryptocurrency custody companies on behalf of shoppers. The second letter, OCC Interpretive Letter 1172, concluded that banks could maintain deposits that function reserves for stablecoins which can be backed on a 1:1 foundation by a single fiat forex and held in hosted wallets. The third letter, OCC Interpretive Letter 1174, concluded that banks could use distributed ledgers and stablecoins to have interaction in and facilitate fee actions. The three earlier letters indicated that banks conducting cryptocurrency actions should abide by protected and sound banking practices.

Within the latest letter, the OCC elaborated on the method that might be required to have interaction in cryptocurrencies in a “safe and sound” method. So long as a financial institution exhibits that it has ample controls in place, and first obtains written discover of “non objection” by its supervisory workplace, then a financial institution is alleged to be participating in a “safe and sound manner.”

In deciding whether or not to grant supervisory “non-objection,” the supervisory workplace will consider the adequacy of a financial institution’s danger measurement and administration info techniques together with:

  • Any related compliance obligations, together with beneath the Bank Secrecy Act, Federal Securities legal guidelines, the Commodity Change Act, and shopper safety legal guidelines.

  • Whether or not the financial institution has established applicable danger administration and measurement course of (e.g., figuring out, monitoring, and controlling danger)

  • Whether or not the financial institution has addressed novel dangers related to cryptocurrency actions (e.g., hacking, fraud, theft, liquidity danger, strategic danger, and compliance danger)

Lastly, the letter additionally reiterated that OCC Interpretive Letter 1176 on the OCC’s chartering authority didn’t broaden on or change a financial institution’s present obligations beneath the OCC’s fiduciary actions laws. The OCC retains discretion in figuring out whether or not an exercise is carried out in a fiduciary capability for functions of federal regulation.

Placing it into Observe:  Banks that plan to conduct cryptocurrency actions ought to pay particular consideration to this sequence of letters from the OCC .  Due to the regulatory hurdles, banks in cryptocurrency actions must be conscious that they might want a lot increased ranges of capital and liquidity to fulfill the OCC’s new necessities.  As of this newest letter, banks already engaged in cryptocurrency, distributed ledger, or stablecoin actions don’t want to acquire supervisory non-objection, offered that they beforehand notified their supervisory workplaces and have satisfactory techniques and controls in place to be certain that they’re working in a “safe and sound” method.

Co-authored by Gabriel Khoury, a regulation clerk in Sheppard Mullin’s Washington, D.C. workplace.

Source link