OCC’s Crypto Adventure: Banks Can Now Play with Digital Toys! 🎉💰

Ah, dear reader! In the recent months, the illustrious federal Office of the Comptroller of the Currency (OCC) has decided to loosen its iron grip on the national banks and federal savings associations (let’s call them banks for brevity, shall we?). They are now allowed to frolic in the fields of crypto-asset activities! “I shall labor tirelessly to ensure regulations are effective and not excessive,” proclaimed the Acting Comptroller, Rodney E. Hood, as if he were a modern-day Prometheus bringing fire to the banking world.

On the fateful day of March 7, the OCC, in a move reminiscent of a dramatic plot twist, issued Interpretive Letter 1183. This letter, akin to a magical scroll, rescinded the cumbersome supervisory non-objection process that had shackled banks from engaging in crypto-asset activities. The red tape has been cut, and the banks can now dance freely in the crypto ball!

But wait, there’s more! In May, the OCC followed up with Interpretive Letter 1184, further confirming that banks may engage in certain crypto-asset activities. They even addressed the roles of third-party service providers—like those trendy fintech companies—who can now join the party. 🎉

Key Takeaways:

The OCC has decided that banks no longer need to undergo a supervisory non-objection process before offering crypto-asset products. Hooray for less bureaucracy!
This delightful removal of red tape means that crypto-asset banking activities can spread like wildfire. But don’t get too excited; supervisory expectations still loom like a shadowy figure in the corner.
Yes, banks can now provide crypto-asset custody services, hold stablecoin reserves, and even act as nodes for distributed ledgers. Who knew banking could be so thrilling?
And guess what? Banks can use third-party sub-custodians for custody services, provided they manage their risks properly. Because, you know, we wouldn’t want any mishaps!
For those banks eager to dive into the crypto pool, reviewing the OCC’s guidance is a must. It’s like reading the fine print before signing a contract, but with more excitement!
Since crypto-asset activities are still the new kids on the block, banks should proactively identify controls and processes to manage risks. Think of it as preparing for a surprise pop quiz!

What the Recent Interpretive Letters Do

The OCC’s recent interpretive letters signal a delightful shift away from the cautious approach of the previous administration. They are now brimming with confidence in banks’ abilities to manage crypto-asset risks. It’s like watching a timid child finally take their first steps!

These letters give banks the green light to explore crypto-asset opportunities, eliminating the pesky supervisory non-objection process that had been in place since 2021. Freedom at last!

What Crypto-Asset Activities Are Permitted?

Interpretive Letter 1170 – Banks can now provide crypto-asset custody services in both fiduciary and non-fiduciary capacities. A win-win!
Interpretive Letter 1172 – Banks can hold deposits from stablecoin issuers. It’s like having a piggy bank, but cooler!
Interpretive Letter 1174 – Banks are authorized to engage in payment-related activities involving stablecoins. They can now act as nodes for independent verification networks. Talk about being in the loop!

In these recent letters, the OCC has reaffirmed that these crypto-asset activities are still permissible. They even hinted at a supportive stance towards third-party service providers. It’s a crypto party, and everyone’s invited!

What Was the OCC’s Supervisory Non-Objection Process?

Under the now-rescinded Interpretive Letter 1179, banks had to notify their OCC supervisory office and obtain a written non-objection before proceeding with crypto-asset activities. It was like asking for permission to go to the bathroom!

Non-objection letters were only issued if banks could prove they had adequate risk management processes. It was a rigorous test, akin to a final exam!

Eliminating this process removes a significant regulatory barrier, but banks still need to manage risks effectively. No slacking off now!

Crypto-Asset Risk Management Going Forward

Moving forward, these activities will be reviewed by the OCC as part of its regular supervisory process. Banks must ensure that their crypto activities are safe, sound, and compliant with the law. If a third-party service provider is involved, banks will need to implement appropriate risk management practices. It’s like having a safety net!

By removing the supervisory non-objection barrier, the OCC has placed greater responsibility on banks to implement comprehensive risk management frameworks. They may find it easier to integrate crypto-related products into their offerings. How convenient!

However, the OCC will still expect strong controls to manage risks. For example:

Crypto-Asset Custody Services – Strong security controls are needed to avoid mismanagement of cryptographic keys. Think of it as guarding the crown jewels!
Holding Stablecoin Reserves – Banks should maintain daily reserve verification requirements to ensure a 1:1 backing of the stablecoin by fiat. It’s all about keeping things in check!
Stablecoin Payments Activities – Banks must address anti-money laundering, cybersecurity, and consumer protection risks. It’s a complex world out there!

Banks engaging in crypto-asset activities should align with these expectations. However, as with all new adventures, the compliance questions may not yet be fully understood. Staying up to date on the regulatory landscape is key for banks engaged in this thrilling journey.

In conclusion, banks can stay ahead of new regulatory developments by proactively managing risks and engaging with regulators. It’s a dance of compliance and innovation!

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

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