As presaged by Appearing Comptroller Hsu’s earlier statements that cryptocurrency precedents issued below the prior Comptroller had been below evaluate, the Letter makes an attempt to constrain with out overturning OCC Interpretive Letters 1170 (addressing whether or not Banks might present cryptocurrency custody providers),2 1172 (addressing whether or not Banks might maintain deposits backing stablecoins),3 and 1174 (analyzing whether or not Banks might act as nodes on a distributed ledger to confirm funds or interact in sure different stablecoin actions to facilitate fee transactions).4 Though the Letter doesn’t rescind these interpretative letters, it signifies that earlier than exercising any of the authorities articulated in these letters, a Financial institution might want to acquire particular approval tied to the OCC’s evaluation of the Financial institution’s capability to interact within the exercise in a secure and sound method. For this objective, a Financial institution should notify its supervisory workplace of its intent to interact within the actions and acquire a written nonobjection from the supervisory workplace.5 Banks making such filings ought to anticipate rigorous, and certain prolonged, evaluate.
The OCC’s evaluation of security and soundness in reference to actions involving cryptocurrency, distributed ledger, and stablecoin will give attention to the Financial institution’s danger evaluation and danger administration programs and its controls to handle recognized dangers. Banks participating in such actions are anticipated to handle, amongst different issues, operational dangers (together with hacking, fraud, and third-party danger administration), liquidity dangers, strategic dangers and compliance dangers (together with however not restricted to compliance with the Financial institution Secrecy Act, anti-money-laundering necessities, sanctions necessities, commodities legal guidelines, securities legal guidelines, and client safety legal guidelines). The Letter specifies that “according to longstanding OCC precedent, a proposed exercise can’t be a part of the ‘enterprise of banking’ if the financial institution lacks the capability to conduct the exercise in a secure and sound method.” As soon as the supervisory nonobjection is acquired, the OCC will oversee these actions as a part of OCC’s bizarre supervisory processes.
The Letter particularly highlights that there could also be completely different authorized and compliance obligations for stablecoin actions relying on how the actual stablecoin is structured, noting that “sure stablecoins could also be securities.” Given the authorized authority for Banks to interact in transactions involving digital property which can be securities, and the relevant compliance obligations, differ considerably from these involving nonsecurities tokens, the Letter creates vital questions as to what degree of consolation the OCC would require earlier than permitting a Financial institution to transact in digital property whose standing below the federal securities legal guidelines could also be unresolved.
Lastly, the Letter makes an attempt to ring-fence, with out rescission, the scope of OCC Interpretive Letter 1176,6 which handled OCC’s authority below the Nationwide Financial institution Act to constitution, or approve the conversion to, a nationwide financial institution that limits its operations to these of a belief firm and sure associated actions. Specifically, the Letter signifies that Interpretive Letter 1176 will probably be utilized solely in reference to chartering choices and won’t govern the query whether or not actions which can be thought-about “belief or fiduciary” below state legislation will probably be deemed to be belief or fiduciary actions below federal legislation. If a nationwide financial institution conducts an exercise in a nonfiduciary capability (no matter its characterization below state legislation), the Half 97 fiduciary requirements is not going to apply, and actions presently performed below Half 9 fiduciary powers stay unaffected. Total, the OCC asserts that whether or not an exercise that’s “belief or fiduciary” below state legislation constitutes a “belief or fiduciary” exercise for functions of federal legislation is a matter of OCC discretion.
The publication of the Letter was accompanied by the discharge of an interagency joint assertion8 issued by the Businesses on the identical day that (a) summarizes the work undertaken throughout coverage sprints performed by the Businesses to investigate varied points concerning cryptoassets and (b) gives a roadmap of future deliberate work associated to cryptoassets. In line with this joint assertion, in 2022 the Businesses will present better readability on the permissibility of sure actions associated to cryptoassets9 and on the Businesses’ expectations for security and soundness client safety, software of capital and liquidity requirements, and compliance with current legal guidelines with respect to such actions.
Together, these releases point out that Banks will face considerably heightened scrutiny when taking part within the digital asset financial system.
1 OCC Interp. Ltr. 1179 (Nov. 18, 2021), obtainable at https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2021/int1179.pdf.
2 OCC Interp. Ltr. 1170 (July 22, 2020), obtainable at https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2020/int1170.pdf.
3 OCC Interpretive Letter 1172 (Sept. 21, 2020), obtainable at https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2020/int1172.pdf.
4 OCC Interp. Ltr. 1174 (Jan. 4, 2021), obtainable at https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-2a.pdf.
5 Nonobjection letters is not going to be required from banks already licensed to be engaged in cryptocurrency, distributed ledger, or stablecoin actions, however the OCC will carefully study the licensed actions of these entities to make sure that they’re performed in a secure and sound method.
6 OCC Interp. Ltr. 1176 (Jan. 11, 2021), obtainable at https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2021/int1176.pdf.
7 12 C.F.R. Half 9.
8 Joint Assertion on Crypto-Asset Coverage Dash Initiative and Subsequent Steps (November 23, 2021), obtainable at https://www.occ.gov/news-issuances/news-releases/2021/nr-ia-2021-120a.pdf.
9 Topic actions embrace cryptoasset safekeeping and conventional custody providers, ancillary custody providers, facilitation of buyer purchases and gross sales of cryptoassets, loans collateralized by cryptoassets, issuance and distribution of stablecoins, and actions involving the holding of cryptoassets on steadiness sheet.
