In Response to OCC Guidance, Some Banks are Already Making Moves Towards Providing Cryptocurrency Services
By: Lily Ramin, RBFL Student Editor
In recent years, cryptocurrency has grown exponentially.[1] Still, until recently, due in part to a lack of regulatory guidance, banks had been uncertain about their ability to engage with cryptocurrency legally. However, in 2020, the Office of the Comptroller of the Currency (OCC) published two interpretative letters, essentially giving banks the green light to provide cryptocurrency services, as long as banks manage the risks and abide by all relevant laws.
More specifically, the July 22, 2020 interpretative letter (the July Letter) clarified that national banks and federal savings associations have the authority to provide cryptocurrency custody services, such as holding unique cryptographic keys for customers.[2] The letter also confirmed that national banks “may provide permissible banking services to any lawful business they choose, including cryptocurrency businesses, so long as [banks] effectively manage the risks” which include hacking, theft, and fraud, “and comply with applicable law” including the Bank Secrecy Act and anti-money laundering rules.[3] The September 21, 2020 interpretive letter provided further clarity, stating that banks may also provide custody services for “stablecoins” that are backed one to one by a single fiat currency.[4]
The OCC guidance sent banks the message that they should either modernize and embrace cryptocurrency or risk missing out on a massive opportunity.[5] Although the guidance was not a significant policy change, the recognition of cryptocurrency by a federal regulator helped legitimize the asset class and made banks feel more comfortable engaging with the asset class despite its risks and volatility.
Some banks have already made major moves in step with the OCC’s guidance. In February, BNY Mellon created a new digital assets unit and announced its plans to provide cryptocurrency custody and investment services later this year.[6] Explaining the move, Roman Regelman, CEO of Asset Servicing and Head of Digital at BNY Mellon, said that “growing client demand for digital assets, maturity of advanced solutions, and improving regulatory clarity present a tremendous opportunity for us to extend our current service offerings to this emerging field.” Also, notably, Coin Desk has reported that J.P. Morgan, Citi, and Goldman Sachs are “said to be working on custody solutions for digital assets and crypto.”[7]
The OCC’s guidance sent a bold, crypto-friendly message to banks. It encouraged them to embrace financial technology advancements and consider providing cryptocurrency services. That message sparked conversation on Capitol Hill. Two congressmen on the Congressional Blockchain Caucus provided their perspectives.[8] Republican Congressman Tom Emmer called the July Letter a “‘big step forward’ for financial innovation.”[9] Somewhat similarly, Democrat Congressman Darren Soto referred to the letter as “‘an important step’ to better integrate cryptocurrencies into the U.S. financial system, though he cautioned that “the federal government is still behind in incorporating” cryptocurrency.”[10] A few months later, Maxine Waters, Chairwoman of the House Committee on Financial Services, recommended that President Biden rescind the OCC’s cryptocurrency related guidance.[11] President Biden’s likely pick for Comptroller of the Currency, Michael Barr, previously served on cryptocurrency firm Ripple’s advisory board.[12] If confirmed, given Barr’s cryptocurrency background, he could likely support policies that adopt the crypto-friendly stance of the OCC’s July and September interpretive letters.[13]
[1] Top 100 Cryptocurrencies by Market Capitalization, CoinMarketCap, https://coinmarketcap.com/ [https://perma.cc/E8W4-9WH8] (last visited March 5, 2021).
[2] Office of the Comptroller of the Currency, Interpretive Letter No. 1170 1 (July 22, 2020), https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2020/int1170.pdf [https://perma.cc/56NJ-PQNU].
[3] Id.
[4] Office of the Comptroller of the Currency, Interpretive Letter No. 1172 1, 3 (Sept. 21, 2020), https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2020/int1172.pdf [https://perma.cc/2XK3-7KFU].
[5] Steven D. Lofchie, OCC Allows National Banks to Provide Digital Asset Custody Services, Mondaq (July 28, 2020), https://www.mondaq.com/unitedstates/fin-tech/969788/occ-allows-national-banks-to-provide-digital-asset-custody-services.
[6] Press Release, BNY Mellon, BNY Mellon Forms New Digital Assets Unit to Build Industry’s First Multi-Asset Digital Platform, BNY Mellon (Feb. 11, 2021), https://www.bnymellon.com/us/en/about-us/newsroom/press-release/bny-mellon-forms-new-digital-assets-unit-to-build-industrypercent27s-first-multi-asset-digital-platform-130169.html [https://perma.cc/56ZP-KG3M].
[7] Ian Allison, BNY Mellon Announces Crypto Custody and Spies Integrated Services, CoinDesk (Feb. 11, 2021, 7:23 AM), https://www.coindesk.com/bny-mellon-announces-crypto-custody-and-spies-integrated-services [https://perma.cc/DX4G-ZEAQ].
[8] Nikhilesh De & Ian Allison, Banks Won’t Rush to Hold Crypto—But OCC’s Regulatory Approval Makes it Harder to Ignore, CoinDesk (July 27, 2020, 2:34 PM), https://www.coindesk.com/banks-wont-rush-to-hold-crypto-but-occs-regulatory-approval-makes-it-harder-to-ignore [https://perma.cc/J4WU-LUSD] (explaining that the July Letter “is rapidly expanding crypto awareness on Capitol Hill”).
[9] Id.
[10] Id.
[11] Letter from Maxine Waters, Chairwoman of the House Comm. on Fin. Servs., to Joe Biden, President-elect (Dec. 4, 2020), https://financialservices.house.gov/uploadedfiles/120420_cmw_ltr_to_biden.pdf [https://perma.cc/G5WE-A6HC].
[12] Evan Weinberger & Andrew Ramonas, Progressives Fret Over Biden’s Pick to Oversee National Banks, Bloomberg L. (Feb. 5, 2021, 12:08 PM), https://news.bloomberglaw.com/banking-law/progressives-fret-over-bidens-pick-to-oversee-national-banks.
[13]John Adams, Biden’s OCC Expected to Chart New Course for Fintechs, Crypto, AML, American Banker (Jan. 27, 2021, 3:17 PM), https://www.americanbanker.com/news/bidens-occ-expected-to-chart-new-course-for-fintechs-crypto-aml.