WASHINGTON — The Office of the Comptroller of the Currency issued more rigorous guidelines for banks wanting to provide cryptocurrency services, on the same day that all three federal bank regulators previewed further crypto-related policies to come in 2022.
In an interpretive letter, a senior OCC official said banks wanting to offer custody services or engage in other activities related to crypto assets must first get the approval of their local OCC supervisory office.
"The bank should not engage in the activities until it receives written notification of the supervisory office’s non-objection," Chief Counsel Benjamin W. McDonough wrote in a letter dated Tuesday.
The letter appears to harden the agency's stance somewhat toward crypto activities compared to guidance issued by former acting Comptroller Brian Brooks, a Trump appointee and noted digital currency advocate.
The new letter seems to stand by much of the legal precedent that Brooks cited in four previous interpretive letters and did not suggest that banks are barred from pursuing crypto lines of business. But McDonough made clear that the OCC expects banks to keep their examiners apprised and that regulators will be evaluating those activities on the basis of safety and soundness.
"This letter clarifies that the activities addressed in those interpretive letters are legally permissible for a bank to engage in, 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," McDonough wrote.
Brooks had issued a letter in July 2020 that cleared banks to offer custody services for crypto assets, followed by a September 2020 letter detailing requirements for stablecoin issuers to place cash reserves at a bank. A third letter from January cleared banks to use distributed ledger technology and stablecoins to facilitate payments.
Those first three letters were “consistent with OCC precedent,” McDonough wrote on Tuesday, so long as the activities themselves were consistent with “safe and sound banking practices.”
“A longstanding corollary to this principle is that a proposed activity is not legally permissible if the bank lacks the capacity to conduct the activity in a safe and sound manner,” McDonough wrote.
Brooks' fourth letter expanded permissible activities for a nationally chartered trust bank, including non-fiduciary activities, as crypto-focused firms such as Anchorage were seeking OCC charters.
But McDonough’s letter appears to try to limit the potential future scope of what a national trust bank can do.
“Whether an institution may be chartered under” the OCC’s existing authority “is a question of federal law,” he wrote. “The 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.”
An interagency road map
Meanwhile, the OCC along with the Federal Reserve Board and Federal Deposit Insurance Corp. issued a joint statement committing to provide banks joint guidance in several crypto-related areas over the coming year.
“Throughout 2022, the agencies plan to provide greater clarity on whether certain activities related to crypto-assets conducted by banking organizations are legally permissible, and expectations for safety and soundness, consumer protection, and compliance with existing laws and regulations,” the regulators wrote.
The joint statement said regulators would weigh in on crypto-asset safekeeping and custody services; the facilitation of customer purchases with, and sales of, crypto-assets; whether loans may be collateralized by cryptocurrency; stablecoin issuance and other activities related to banks holding crypto-assets on their balance sheets.
The agencies also said they would “evaluate the application of bank capital and liquidity standards” to crypto-assets and activities, adding they would “continue to engage with the Basel Committee on Banking Supervision on its consultative process in this area.”
Basel, a standard-setting body followed by financial regulators around the globe, published a rule in June recommending that banks adhere to strict risk weighting practices when dealing with crypto-assets.
The document summarizes the work that the agencies conducted during a "policy sprint" to come up with key definitions "regarding the use of crypto-assets by banking organizations” and identify “key risks” posed by the crypto sector to the broader financial system.
The joint statement also said that agency staff analyzed “the applicability of existing regulations and guidance,” in addition to “identifying areas that may benefit from additional clarification.”
