US Banking Regulator Greenlights Crypto Custody At Federally Chartered Banks (#GotBitcoin)
The office of the U.S. Treasury that handles banks has issued a determination on the long-debated subject of custodying crypto assets. US Banking Regulator Greenlights Crypto Custody At Federally Chartered Banks (#GotBitcoin)
Per a July 22 announcement shared with Cointelegraph, the Office of the Comptroller of the Currency (OCC) is granting permission to federally chartered banks to custody cryptocurrency.
This issue has seen much skepticism, given that crypto wallets do not resemble the custody requirements of other sorts of assets. Nonetheless, in its interpretive letter on the subject, the OCC wrote:
“The OCC recognizes that, as the financial markets become increasingly technological, there will likely be increasing need for banks and other service providers to leverage new technology and innovative ways to provide traditional services on behalf of customers.”
In the words of the announcement, the new opinion “applies to national banks and federal savings associations of all sizes.”
Acting Comptroller of the Currency Brian Brooks similarly saw the development as part of modernizing banking in the U.S., saying “From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today,”
The OCC’s letter further specifies that bank “custody” of crypto assets is dependent on their access to the keys to the crypto wallets rather than any sort of physical requirement — a confirmation of Andreas Antonopoulos’ famous line of “not your keys, not your coins.” the OCC specifies:
“That national banks may escrow encryption keys used in connection with digital certificates because a key escrow service is a functional equivalent to physical safekeeping.”
OCC’s Heightened Crypto Engagement Under Brooks
Coming from Coinbase’s legal team, Brian Brook’s tenure as Acting Comptroller has seen accelerated onboarding of crypto capabilities in the U.S. financial system.
Speaking with Cointelegraph in early June, Brooks hinted at his interest in expanding the right to custody crypto.
This follows an international trend of banks looking to incorporate the crypto asset class.
Don’t Expect Banks To Jump On The OCC Crypto Custody News
Banks can now offer cryptocurrency and digital asset custody to their clients, but what does this really mean?
As you may know, the Office of the Comptroller of the Currency (OCC) announced Wednesday that nationally chartered banks in the U.S. can now jump into the crypto custody arena. There are plenty of opinions about what impact this will have on the industry, and many of them are at odds.
Some feel this is the beginning of a new era for the industry where banks will be able to offer complimentary digital asset services attractive to sophisticated investors; or, even more optimistically, that a Bitcoin ETF is more likely to be approved. Others have lamented that banks will audit and tax every penny, or, even worse, that they will readily agree to help the federal government seize coins in the future.
Here’s the thing. Traditional financial institutions, banks included, move slowly. Most make turtles look like they’re in a hurry. So, don’t expect any to announce their brand new custody platform immediately, if at all.
According to a recent Fidelity survey, only about a third of all these firms even own crypto.
Think about that for a second.
Many investors in this space are here because they are weary of being exposed to the systemic risk that having digital assets custodied in a traditional financial institution could create. They are hedging against the very network that’s trying to encroach on Bitcoin.
“The bulk of banks and other sophisticated players in the old school markets don’t know much about our industry.”
Given this unusual (and vocal) segment of our industry, banks may not have quite the opportunity they think they do, and a significant share of crypto asset traders and investors may avoid them altogether and stick with crypto native firms that are somewhat insulated from the potential problems of a Northern Trust or a State Street, both of which are large traditional custodians that took TARP bailout funds during the Great Recession.
The bulk of banks and other sophisticated players in the old school markets don’t know much about our industry. Most of them don’t appear to have even done anything as basic as buying a fractional Bitcoin on Robinhood.
Some firms have even publicly frowned upon bitcoin. For example, just this past May, Goldman Sachs said in a widely publicized research note that “cryptocurrencies including bitcoin are not an asset class.”
Comments like those don’t appear to be aging well, and are important because they show the fundamental lack of experience and understanding of digital asset markets that at least some of these firms have. Sure, their reach and distribution is huge, but what does that matter if they don’t have the knowledge or relationships to build such an offering?
It isn’t all negative, though. There are positives that can be taken away from this announcement.
When former Coinbase Chief Legal Officer Brian Brooks became the acting head of the OCC, his office announced that he wanted banks to submit input on crypto rule policies, this was a major change from the previous head.
Additionally, now that nationally chartered banks can officially do business as a crypto custodian, this will legitimize digital assets to more people, both on the retail consumer side and institutionally. And, I wouldn’t be surprised if we saw a jump in values for many of the more well-known crypto assets over the coming days and weeks.
Paul Tudor Jones, one of the most successful and well known hedge fund managers in the world, recently made news by making public his intention to include bitcoin futures in response to an “unprecedented expansion of every form of money unlike anything the developed world has ever seen,” and what he sees as “the upcoming digitization of money everywhere, accelerated by Covid-19.”
He can’t be the only member of the old guard starting to see the value and practicality of Bitcoin and other crypto assets.
More than likely, this will be a catalyst of sorts for an acceleration of clarity from Washington regarding a more solid regulatory framework for our industry (also good). All too often, the clarity of what we can or can’t do seems to shift with the winds. Hopefully, this is the beginning of a trickle-down effect. Maybe this announcement is our stabilizer, maybe Brian Brooks is the even-keeled captain that we need to move forward.
Once all the headlines surrounding this announcement fade away, what will we be left with? Probably not many new custodial entrants from this regulatory approval in the short term, but the bright hope that the onlookers will see the acknowledgement from our government that crypto is real, at least real enough for the house that Morgan built to be allowed to do business with it.
Mainstream Institutions No Longer Have Regulatory Reasons To Fear Crypto
Institutions on the fence about crypto involvement may no longer fear legal uncertainty, given recent crypto custody regulatory clarity.
Recent regulatory transparency provided by U.S. banking regulator, the Office of the Comptroller of the Currency, or OCC, may give interested institutions the confidence to enter the crypto industry.
“For those of us who have been building up this ecosystem for years, it’s hugely validating of those efforts,” Diogo Monica, president of crypto custody service Anchorage, told Cointelegraph on July 23, referring to the OCC’s actions.
“But the real significance here is for the kinds of institutional players who may have been sitting on the sidelines in the absence of clear regulatory guidance. The OCC coming out and saying that more traditional financial institutions can custody crypto effectively erases that concern.”
The OCC’s Move Is A Victory For The Crypto Industry
On July 22, the OCC proclaimed digital asset custody by federally chartered U.S. banks as permissible activity.
The move provided transparency without changing any current guidelines, Morgan Creek Digital co-founder Anthony Pompliano said in a recent YouTube video.
“Yesterday’s OCC letter is a huge win for crypto,” Monica said. “Not only does it bring much needed regulatory clarity to the digital asset space in the United States, it also signals to skeptics and the wider market that this asset class is here to stay.”
More Banks May Enter The Industry
Will all banks offer crypto custody in the future? “It’s not so much a question of if they will as how they will,” said Monica. Holding digital assets for customers currently requires specific technical tools and prowess — something banks may not house at present, he explained. Blockchain activity and interaction, such as staking, also brings further complications and requirements.
“Particularly when those actions are yield-generating, it will be imperative for fiduciary banks to support them through partnerships or sub-custodian relationships with a financial services platform like Anchorage,” he added.
An up and coming crypto custody outfit, Anchorage garnered $40 million from a number of companies, including Visa, announced in mid-2019. The startup has since posted a number of new developments.
Wall Street Journal: Banks May Provide Safekeeping of Cryptocurrency, OCC Says
Services may include holding unique cryptographic keys associated with cryptocurrency.
National banks and federal savings associations in the U.S. can provide cryptocurrency custody services for customers, a federal banking regulator said in a guidance letter intended to clarify the role of traditional financial institutions in the virtual-assets market.
The Office of the Comptroller of the Currency said in an interpretive letter this week that national banks and federal savings associations are authorized to provide the services, including holding unique encoded keys associated with digital currencies, for clients.
The letter, made public Wednesday, came in response to a request from an unidentified party that asked the Treasury Department unit that supervises and regulates banks and savings associations to address the authority of a national bank to provide cryptocurrency custody services. Banks wanting to provide such services faced ambiguity around compliance in this area of cryptocurrency, experts said.
The OCC also restated its position that banks may provide permitted banking services to cryptocurrency businesses as long as the banks effectively manage risks and comply with regulations such as anti-money-laundering requirements.
Banks and savings associations have long provided safekeeping and custody services for physical and digital assets. Providing cryptocurrency custody services is a “modern form of traditional bank activities related to custody services,” the OCC said in its letter.
“From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today,” Brian Brooks, acting Comptroller of the Currency, said in a statement. “This opinion clarifies that banks can continue satisfying their customers’ needs for safeguarding their most valuable assets, which today for tens of millions of Americans includes cryptocurrency.”
The OCC said in its letter that it also recognized there will be a growing need for banks and other providers of financial services to use new technology to meet customer needs as financial markets become increasingly digitized.
While the guidance didn’t represent a major policy shift, it provided added recognition of cryptocurrency from a federal banking regulator, said Ross Delston, a Washington, D.C., lawyer who advises clients on anti-money-laundering issues.
Some cryptocurrency exchanges already provide custody services for digital assets, but banks may be able to offer more security for storing cryptocurrency with so-called cold wallets, in which cryptographic keys for a particular unit of digital currency are kept on devices that are completely offline and can be stored in physical vaults, the OCC said in its letter.
The additional sense of security that banks can provide can be an important incentive for customers such as investment advisers connected with hedge funds or private-equity funds to potentially pay more to use custody services instead of similar services offered by crypto-exchanges, Mr. Delston said.
The OCC also clarified in its letter that investment advisers can manage cryptocurrencies on behalf of clients and may use national banks as custodians for the managed assets.
Open The Floodgates: US Customers To See More Crypto Accessibility
Digital payment platforms add more cryptocurrency features for U.S. customers, but will big banks take the lead?
The cryptocurrency market has come a long way in a seemingly short amount of time. Digital payment platforms have particularly taken note of the crypto market’s impressive growth, which is evident, as many have adopted new features and support for more cryptocurrencies.
United States-based customers in particular seem to be reaping the benefits of recent implementations being made by digital payment providers. It’s especially notable that these new features are coming at a time when the Office of the Comptroller of the Currency has granted permission for federally chartered banks to custody cryptocurrency.
Mati Greenspan, a crypto market analyst and the founder of Quantum Economics, told Cointelegraph that the advantages of cryptocurrencies and other digital assets are now quickly becoming apparent to all:
“It did take a while, but governments and large corporations are finally realizing the power of programmable money and the necessity for digital scarcity. The internet of value is now under construction and they don’t want to be left behind.”
A Race To Drive Adoption
Just as the U.S. government has started taking note of cryptocurrency’s intrinsic value, digital payments platforms seem to be adding support for more cryptocurrencies for their American customers. For example, Uphold just added support for Cardano (ADA), Zilliqa (ZIL), LINK, Cosmos (ATOM) and EOS.
JP Thieriot, the CEO of Uphold, told Cointelegraph that these five cryptocurrencies fall into Uphold’s “Tier 4” category, which includes up-and-coming digital assets that are quickly gaining adoption.
“Although these were all launched on Uphold last year, they have been unavailable in the U.S. until today,” he said. Interestingly enough, Uphold announced support for the five new cryptocurrencies shortly after the company’s competitor, Revolut, expanded its cryptocurrency trading services to 49 states in the United States.
While the neobank’s service has been available to its European clients for many years now, as the company first added support for Bitcoin (BTC), Ether (ETH), Litecoin (LTC) and XRP in 2017, Revolut finally launched in the U.S. this March.
Initially, Revolut went live without crypto support, but the platform now allows U.S. users to buy, sell and trade Bitcoin and Ether within its app through its partnership with Paxos. Edward Cooper, the head of crypto at Revolut, told Cointelegraph that the company also plans to extend support for additional cryptocurrencies to its U.S. customers:
“Our job will be to support the tokens we support in Europe including Litecoin and Bitcoin Cash. Stellar Lumens has also been a popular request from our users. So, we’re looking into that. There are about 14 other tokens that have passed our internal due diligence tests that we’re currently looking into adding as well.”
More Than Just Speculation For Retail Investors
Cooper further noted that Revolut has about 60,000 U.S.-based customers and that the company is aware of additional features being requested from these individuals. For instance, the ability to offload crypto from the platform has been a feature that Revolut users have been anxiously awaiting.
While Cooper previously told Cointelegraph that limiting users to trade only within Revolut is a unique advantage over incumbents like Coinbase, he noted that the company has been working with partners and regulators on ways to enhance the product to meet certain requests.
Unlike Revolut and the popular stock and trading platform Robinhood, Uphold claims to be the only digital money platform that allows for the easy withdrawal of cryptocurrencies. According to Michelle O’Connor, the vice president of marketing at Uphold, the platform has implemented full connectivity to support onboarding and offboarding across seven blockchain networks.
Thieriot believes that Uphold offers more crypto-friendly features to its U.S. customers compared to other digital payment platforms, saying that users “aren’t buying the crypto but rather buying participation in a unit of account for that crypto. This means users can’t deposit, withdraw or move the crypto anywhere. Rather, they can just speculate in it.”
Yet as the cryptocurrency market continues to mature, Thieriot pointed out that full-integration platforms that allow users to deposit, withdraw, send and ultimately do more with their crypto will become more important than ever before.
Greenspan stated that the U.S. customers have been mainly buying cryptocurrencies for speculative purposes. However, he pointed out that as with most markets, capital allocation is important. “Money flows tend to determine the future of innovation and vise versa, and it’s quite clear at this point which direction the world is headed,” he remarked.
Digital Payment Platforms Act More Like Banks
It’s also interesting that digital payment platforms continue to adopt features similar to traditional banks, both for U.S. and global customers. For example, cryptocurrency investment app Abra just announced the launch of a savings account, providing its global users with the opportunity to earn up to 9% interest per annum of digital assets and USD-backed stablecoins. Abra CEO Bill Barhydt told Cointelegraph that this has been one of the most requested features from users:
“Many investors use Abra for trading, but there are users outside of the U.S. that use the app for dollar deposits. Abra has now become a bank account. Earning interest not only protects users dealing with local currencies in markets where currencies are being devalued but now these individuals can earn interest at rates much higher than any bank can offer.”
Moreover, Barhydt emphasized that users will be able to earn 9% interest on USD-backed stablecoins, noting that the market currently seems to be supporting that rate. “It starts to set the stage for cryptocurrencies to look more like bank account replacements, as opposed to crypto just for the sake of crypto,” he said.
Will Traditional Banks Eventually Replace Digital Payment Platforms?
Although a number of new features are being implemented by digital payment platforms to make crypto more accessible to users — particularly those based in the U.S. — some may wonder if traditional banks will eventually replace these platforms. Especially now that the OCC is exhibiting interest in cryptocurrencies, digital payment platforms may be racing to ensure that big banks don’t take the lead.
Fortunately, at least for now, this doesn’t seem to be the case. In fact, this may open doors for digital payment platforms to collaborate with major banks in the future, according to Thieriot, who added that it is great for adoption: “I’m not too worried about being out-innovated by the banks. Probably creates space for greater collaboration between companies like Uphold and the more forward-thinking banks we work with.”
Barhydt further explained in an Abra blog post that the implications of the OCC’s actions are far-reaching, writing: “Abra could in theory become a nationally chartered bank in the US. It also means that existing national banks could eventually compete with Abra. Welcome to the party banks!”
OKCoin Says Institutional Investors Benefit Most From OCC Crypto Clarity
OKCoin says recent U.S. regulatory clarity on digital asset custody is significant for big money players.
Recent digital asset custody clarity from the U.S. Office of the Comptroller of the Currency, or OCC, will likely affect institutional investors more, according to OKCoin CEO Hong Fang.
“The biggest impact will potentially be on institutional investors,” Fang told Cointelegraph.
“Retail investors have a much wider range of existing choices (and preferences). I look forward to seeing more banks becoming more open to crypto, with potentially better banking channels, more public awareness, as well as more regulatory clarity. A better user experience ultimately wins.”
The OCC Brings Clarity
On July 22, the OCC clarified a former regulatory grey area of sorts around cryptocurrency custody. As a result, federally chartered banks now know they can custody cryptocurrencies.
“The OCC ruling is definitely positive news for the nascent crypto industry, as crypto assets are now considered a legitimate asset class for banks,” Fang said. “The OCC has made an important milestone by allowing traditional banks to provide custodial services that will apply to crypto, thereby strengthening the overall financial system and broadening financial inclusion.”
Fang added that the clarification allows for further crypto industry expansion.
Will All Banks Offer Crypto Custody In The Future?
Given the OCC’s clarity, matched with the crypto and blockchain industry’s growth over the years, logic might see banks becoming increasingly involved. “Banks will continue to provide products and services that their customers demand,” Fang said on the matter. “Therefore, offering crypto custody depends on each bank’s target market as well as the mainstream adoption of cryptocurrencies,” she added.
The crypto space also already houses several entities pointed toward digital asset solutions, including various U.S. institutions separate from the banking sector, Fang said, adding her interest in viewing how everything plays together around the industry in the coming days.
Industry Calls On Us Regulator To Open Floodgates On Banks’ Crypto Capabilities
A number of crypto businesses and non-profits have written to the main banking regulator in the U.S. asking for banks to have more authorization to deal with crypto.
In response to a request for comment on potential rules from the Office of the Comptroller of the Currency (OCC), many major players in crypto have written in, asking the regulator to expand the authorizations it gives banks to handle cryptocurrencies and use blockchain technology.
Blockchain-Backed Transfers And New Stablecoins As Dollar Competitors
One of the leaders in blockchain-backed financial services, Silvergate Bank wrote to the OCC to promote blockchain as a more efficient way for banks to send money to each other and between client accounts. Silvergate pointed to USD-backed stablecoins like USDC or USDT as examples of how much quicker this system could be:
“Blockchain technology delivers a recognized use case as a transfer of value network, and while many continue to explore how to expand upon that use case, as demonstrated by various USD backed stablecoin projects, they are doing so within existing regulatory frameworks that do not provide adequate guidance for regulated entities, like financial institutions.”
Crypto lobbying group the Blockchain Association similarly applauded the example of stablecoin projects, making a central part of its commentary that the OCC “Allow banks to settle payments and accept deposits in dollar stablecoins that meet criteria defined by the OCC.”
Coin Center, a think tank and lobbying group promoting decentralized network, went a step further in its response to the OCC, advocating for banks to support controversial privacy technologies like:
“(1) trustless transaction mixing technologies like CoinJoin for Bitcoin transactions, and (2) privacy enhanced cryptocurrency networks like Zcash and Monero.”
The OCC And New Vision For Banks
As the Blockchain Association pointed out, even well-intentioned and compliant crypto companies operating in the U.S. have been unfairly locked out of basic financial services. That ends up hurting users: “The lack of access of cryptocurrency business to safe and sound financial services ultimately creates unnecessary risks for U.S. consumers.”
In the OCC’s request, the office emphasized the flexibility of banking, saying “the Federal banking system is well acquainted with and well positioned for change, which has been a hallmark of this system since its inception.”
The OCC is the office of the U.S. Treasury responsible for regulating the country’s federally chartered banks. Since Brian Brooks took over as acting head of the office, it has seen radically accelerated crypto interest. Two weeks ago, the OCC finally authorized banks to custody crypto assets. Since then, Brooks has continued to express interest in blockchain as a way of modernizing payments in the U.S.
Following OCC Letter, Some US Banks Appear Open To Providing Crypto Services
Major U.S. banks might be willing to support cryptocurrency services – with just a bit of additional guidance from the Office of the Comptroller of the Currency (OCC), their federal regulator.
Multiple national banks responded to the OCC’s June “Advance Notice of Proposed Rulemaking” (ANPR), which asked the general public to weigh in before Aug. 3. on how cryptocurrencies and other fintech tools might be used in the financial sector. Notably, several banks, including U.S. Bank and PNC, indicated they might be interested in actually providing crypto custody and other services to customers.
The responses by just under a dozen banks, among a total of 89 submissions from think tanks, policy advocates, crypto startups and other entities, represent one of the strongest signs yet that traditional financial institutions view the still-nascent crypto space as a legitimate asset class.
The responses contrast sharply with an open letter sent to Acting Comptroller of the Currency Brian Brooks. The letter, which opposed a narrow payments charter for fintech companies, was signed by many of the same respondents and sent to the OCC on July 29.
Fresh guidance from the OCC may help provide the necessary legal comfort for banks to provide crypto-native analogs to traditional bank services, wrote Juan Saurez, Coinbase’s vice president and general counsel for enterprise.
“Although these services, such as borrowing, lending and remittances, are permissible activities for national banks, there remains some uncertainty as to whether the provision of these services using cryptocurrencies is authorized,” he said.
Peter Najarian, chief revenue officer at BitGo, told CoinDesk the ANPR’s very existence is exciting, as it’s “a frankly inevitable step in the maturing of this ecosystem.”
Dominic Venturo, chief digital officer at U.S. Bank National Association, perhaps went the furthest in his response, writing that the OCC and other banking regulators should issue guidance around the cryptocurrency market as well as the “expectations for services conducted on distributed ledger technology.”
A lack of clear regulations might result in both banks and customers being unwilling to invest or use cryptocurrencies and similar digital assets, he wrote, with customers potentially being interested in investing in crypto, funding traditional financial products, using cryptos as payments, tokenizing physical assets.
“U.S. Bank does not have a position on the role that cryptocurrency should undertake in the financial services sector, but merely seeks additional regulatory clarity to service the cryptocurrency market as it is currently structured or may be structured in the future,” he wrote.
The OCC should work with the other federal regulators to clarify how cryptocurrencies and digital assets are treated, Venturo wrote.
Specifically, he suggested the OCC differentiate between utility tokens, stablecoins and exchange tokens; clarify the requirements for providing custody services; cross-border restrictions; and “the extent consensus rules must be a part of a transaction.”
PNC Bank’s head of technology and innovation, Steven Van Wyk, commented that the OCC should “continue to reinforce that national banks should take a risk-based approach” in reviewing new products, but should not have risk elimination as the ultimate goal.
“All banking activities (including deposit-taking and lending) involve risk, and the implementation of new technologies … necessarily will involve some degree of risk,” Van Wyk wrote. “A supervision framework that is focused only on preventing risk will, almost by necessity, prevent responsible innovation and the implementation of new technologies by national banks.”
Financial institutions – and OCC rulemaking – should have some focus on consumer protections, several of the responses indicated.
Banks might even need to be encouraged to use “privacy-enhancing cryptocurrency technologies,” wrote Peter Van Valkenburgh, Coin Center’s director of research.
He said banks are obligated to both protect their customers’ privacy as well as surveil and report activities that may break the law. In his view, they can do this effectively with privacy coins and other tools.
Banks can conduct know-your-customer checks and otherwise identify their users to comply with relevant laws before providing privacy services by using mixers or other tools to facilitate crypto transactions.
“They should perform heightened due diligence on any payments their customers initiate or receive if either the amounts involved are substantial or a suspicious pattern of behavior has emerged with respect to several smaller transactions,” Van Valkenburgh wrote.
Tina Woo, senior managing counsel for regulatory affairs at Mastercard, also suggested consumer protection rules by the OCC would be helpful, addressing both security and privacy concerns.
The OCC should develop criteria for which “types of cryptocurrencies in which banks may transact,” she wrote, which address “core network principles” including protecting consumers and preventing money laundering or terrorist financing.
“We believe cryptocurrencies and blockchain technology hold the potential to enhance operational resiliency, improve auditability, and enable new functionalities,” she wrote.
‘Based On Confidence’
Not all submissions were positive: some expressed concern about relaxing regulations.
Cornell Law School Professor Dan Awrey, Wharton Financial Institutions Center Senior Fellow James McAndrews and Columbia Law School Academic Fellow and Lecturer Lev Menand wrote the OCC’s ANPR has two major flaws: “an excessive focus” on finding ways to relax existing rules and “its narrow focus” in updating the regulatory framework for national banks and savings associations.
Menand is an advocate for a digital dollar structure, and supported efforts to introduce a digital dollar in multiple congressional bills earlier this year.
“Money and payment systems are based on confidence,” the three wrote. “In the case of the national banking system, this confidence stems from highly sophisticated regulatory frameworks that govern national banks. These regulatory frameworks include federal deposit insurance, access to central bank liquidity support and a special resolution regime.”
In other words, individuals trust banks because of a strict regulatory regime that lets them deposit their funds secure in the knowledge their money is safeguarded.
The second flaw relates to the existing legal structure surrounding banks and savings associations, they wrote.
The ANPR notes that many new financial technologies exist because newly created institutions and platforms try to perform banking functions but aren’t regulated like traditional banks.
The OCC should consider whether it makes more sense to strengthen regulations around non-bank financial institutions, which the letter refers to as “shadow payment systems.”
New financial technology firms that sprung up in recent years, including stablecoin issuers and companies like PayPal, operate in a murky regulatory environment that requires far fewer protections than banks face.
To resolve these concerns, the three said Congress could pass new laws requiring these startups hold insured deposits and deposits at commercial banks. Stablecoin issuers could be required to maintain either the sum total of U.S. dollars or the U.S. dollar equivalent of issued tokens at a bank.
“The OCC should recommend that Congress enact new legislation to address the shortcomings in our existing regulatory framework. Such legislation can be quite simple,” they wrote.
Third Party Help
Banks don’t necessarily have to provide crypto services directly. BitGo, which has offered custody services for over a year, believes that banks should be able to tap sub-custodians to provide these services, Najarian said.
This would relieve banks of the technological and resource burden that would come of having to directly build out their own services.
Miller Whitehouse-Levine at the Blockchain Association told CoinDesk he agreed. The industry organization recommended letting third parties provide certain services for banks in its own response, he said.
“The OCC permits banks to engage third parties to conduct what they consider to be critical bank activities,” he told CoinDesk.
Visa Vice President for Global Regulatory Affairs Ky Tran-Trong wrote that the payment rail wants to be an intermediary for cryptocurrencies and its 61 million merchants.
“Our objective is to enable digital currency users to spend from their digital currency balance using a Visa debit or prepaid credential anywhere Visa is accepted,” Tran-Trong said in the letter.
R3, another third-party service provider, touted its integrations with SWIFT, Nasdaq and Deutsche Börse Group, noting these partnerships have allowed participants in financial transactions to monitor these transactions more efficiently than traditional tools provided for.
In particular Nasdaq has launched a platform tapping R3 to help manage issuance and other services, wrote Isabelle Corbett, R3’s global head of government relations.
Kristin Boggiano, founder of the Digital Asset Regulatory and Legal Alliance and co-founder of trading platform CrossTower, told CoinDesk the OCC is in its initial stage of rulemaking, meaning this is the best time for the industry to express its concerns and make suggestions to the agency.
“Once the broad policy has been etched, market participants and regulators will move to proposed rulemaking,” she said through a spokesperson. “At that stage, the ability to engage in dialogue about policy and the broad framework becomes more difficult. Thus, this is a critical time for market participants and regulators to jointly develop a framework in which all stakeholders are comfortable.”
A wide range of industry participants appear to agree: Novi (the rebranded Facebook subsidiary Calibra), ConsenSys, Celo, Axos Bank, the American Bankers Association, Figure Technologies, Chamber of Digital Commerce, Silvergate Bank, Ripple Labs and other respondents all supported the idea that banks and savings institutions can safely handle crypto-related services with the right amount of regulation.
The Blockchain Association’s Kristin Smith told CoinDesk it is important, as a first step, for any entity that has a stake in the crypto industry to ensure it weighs in with the OCC..
Visa’s Tran-Trong summed up his hope for the OCC’s ultimate rulemaking process by calling for new regulation that still allows for innovation:
“We recognize that enterprise adoption of blockchain technology can improve several core functions in financial services by providing tamper evident and tamper resistant digital ledgers. However, absent further innovations, inherent challenges with respect to improving scalability, security and device usage, can limit consumer adoption and fail to meet regulatory standards,” he wrote.
The OCC’s Crypto Custody Letter Was Years In The Making
A federal banking regulator’s decision to let banks provide crypto custody services may have seemed out of the blue, but the agency has been looking at cryptocurrencies for years.
The Office of the Comptroller of the Currency (OCC) announced last month that federally regulated banks could provide services to crypto startups in addition to custody. It turns out the OCC was already leaning toward the move before Acting Comptroller Brian Brooks took the top job at the agency.
Indeed, the OCC has been examining the cryptocurrency space since at least 2018 and likely longer, said Jonathan Gould, senior deputy comptroller and chief counsel. He told CoinDesk that the very act of writing an interpretive letter typically takes months.
“Before we actually put pen to paper that process can sometimes take a while,” he said.
The OCC’s interpretative letter last month opened the door for banks to provide services to crypto companies in addition to custody services for cryptocurrencies directly, but it’s unlikely that banks will immediately start providing either service.
Rather, these letters are supposed to help banks that are also interested in crypto determine whether it makes sense for them to begin getting involved in the space, Gould said.
Banks still need to ensure they have proper risk management practices and otherwise ensure they are prepared legally to offer these services before they can actually do so.
The process of creating an interpretive letter typically begins when a bank makes a request, or the OCC sees a number of similar requests from different institutions.
The actual act of drafting interpretive letters can take weeks or months, Gould said.
“A lot of times we just provide informal advice, meaning advice about what we think is okay, and when we do [we do] so without putting anything in writing,” he said. “But sometimes we put things into these interpretive letter forms so again it’s a function of kind of the nature of the issue.”
The OCC looks at how many banks are asking about a specific issue or whether the regulatory agency itself thinks there might be a commonly held question, with these factors determining whether there will be an informal response or a formal letter.
“The kind of process to actually write an interpretive letter like this one, that doesn’t necessarily take a huge amount of time,” he said. “But kind of thinking through the legal and other issues associated with an issue that can take a lot longer depending upon the complexity of the issue.”
The letter is just the beginning of a longer process. The OCC will interact with banks on their next steps if they do decide to pursue crypto services.
“There are a whole host of legal, regulatory and supervisory expectations that we have,” he said. “Especially with new activities that involve kind of iterative and interactive dialogue with the OCC supervisors, about how XYZ activity can be done in a safe and sound fashion, whatever risks are associated when activity can be appropriately kind of managed and so forth.”
The OCC has published more than 1,100 letters it believes are precedential or otherwise of interest to the general public.
Gould did not say how long the OCC had been looking at last month’s interpretive letter on crypto services specifically, but reiterated that it could take the agency weeks or months to draft a 10-page letter.
The OCC has been considering the legal and supervisory questions around crypto for years, he said, prior to Brooks joining the agency from his previous role at Coinbase. But Brooks has been able to bring specific knowledge about the crypto space to the agency.
“It is certainly the case, however, that because we have an Acting Comptroller who is exceptionally knowledgeable about these areas that has been hugely beneficial in terms of the agency’s thinking and understanding,” Gould said.
Banks that are now interested in branching out into crypto should reach out to their local OCC supervisors if they have additional questions, and Gould said he hopes institutions that are looking at crypto reach out sooner than later.
“This is and will continue to be a learning process for us from a supervisory perspective and so we really need that engagement and welcome it on our end,” Gould said.
Federal Payments Licensing Push Could Boost Crypto Adoption
The Office of the Comptroller’s move to license payments firms at the federal level is receiving push-back from state regulators.
Brian Brooks, Coinbase’s former chief legal officer and the current U.S. Comptroller of the Currency, is pushing to consolidate licensing regulations for payment companies at the federal level in the United States.
Federal licensing for payments firms that do not accept deposits could open the door to further mainstream adoption of virtual currencies by allowing crypto payments firms to obtain approval to operate across multiple states. The U.S.’s patchwork of federal and state regulations has deterred many virtual currency firms from setting up shop in the United States.
However, analysts predict that many states will push back against federal licensing, citing an ongoing dispute over the OCC’s fintech charter with the New York Department of Financial Services.
In An Interview With Law360, Crowell & Moring Partner Michelle Gitlitz Said:
“It would surprise me if the same thing didn’t happen again. I don’t see why a regulatory institution like the New York Department of Financial Services would take a different position with respect to a payment charter than they did with the fintech charter.”
At the end of August, John Ryan, president of the Conference of State Bank Supervisors (CSBS), published a statement expressing the association’s opposition to federal payment licensing and accusing the OCC of “disregard[ing] the statutory limits of its authority.”
“The OCC’s proposed payments charter is no different than the fintech charter already rejected in federal court and subject to a nationwide order preventing the OCC from accepting applications from a company that does not take deposits,” the letter said.
“State regulators are opposed to this unconstitutional expansion of power.”
Despite this, the Office of the Comptroller of the Currency announced it was prepared to accept applications from payment firms for a federal banking charter last week.
Brian Brooks’ appointment to head the OCC has been welcomed by the crypto sector, with Celsius founder and CEO Alex Masinsky tweeting:
I think most of #Cryptoland does not understand how big this is for everyone in our community. I hope Brian can get the lawmakers and regulators change their ways and open the doors for Crypto to scale. https://t.co/yZauzPXVBs
— Alex Mashinsky ©️ (@Mashinsky) September 11, 2020
OCC’s Brian Brooks Testifies To The Importance Of Crypto Before US Senate
The Acting Comptroller of the Currency presented the growing role of crypto in general and stablecoins in particular to the Senate today.
As part of his statement to the U.S. Senate Committee on Banking, Housing and Urban Affairs, acting Comptroller of the Currency, Brian Brooks, prepared a whole section on crypto assets, including specific mention of stablecoins.
“Today, roughly 60 million Americans own some type of cryptocurrency, with a total market cap of nearly $430 billion,” Brooks said, adding:
“These figures clearly illustrate that this payment mechanism is now firmly entrenched in the financial mainstream. Cryptocurrency has become a popular mechanism for sending and receiving payments for goods and services because transactions post in real time and provide convenience and security.”
Brooks also mentioned people becoming accustomed to crypto, as seen in stablecoin usage. The government leader subsequently recapped major crypto-related moves by the Office of the Comptroller of the Currency, or OCC, throughout 2020.
The office gave federally chartered banks approval to custody crypto in July, clarifying uncertain regulation. In late September, the OCC provided further clarity on digital asset custody in relation to stablecoin reserves.
“The agency continues to consider other issues relevant to cryptocurrency assets and distributed ledger technology including the application of the technology to support payments services conducted within the federal banking system,” Brooks concluded.
Regulatory intervention has increased globally in 2020, seen in enforcement action as well as government clarity.
OCC Works To Win Back House Democrats, Still Miffed At Leader’s Focus On Crypto
Acting Comptroller Brian Brooks continues his work to reach across the aisle with pledges from major players to support minority-owned banks.
The U.S. Treasury’s Office of the Comptroller of the Currency is expanding an outreach program designed to provide access to minority depository institutions, or MDIs.
Per a Thursday announcement shared with Cointelegraph, the OCC’s Project REACh is expanding to include a pledge of large and mid-sized banks partnering with MDIs. The pledge requires the partner bank to expand investment and support for executive development at the MDI that it works with.
MDIs are simply banks or credit unions that are majority-owned by ethnic or racial minorities. They are seen as critical to expanding financial inclusion to minority groups left out of many parts of the broader financial system. Acting Comptroller Brooks said of MDIs:
“Their unique status makes them well-suited to help improve financial services for minority and underserved communities and create meaningful economic opportunities.”
The OCC named Citibank, Flagstar, Huntington, Texas Capital and Wells Fargo as the first cohort to commit to the new pledge.
Initially announced in October, Project REACh began under Brooks’ leadership and has been a centerpiece of his work on financial inclusion — especially before Democratic members of the House Financial Services Committee, unhappy with his focus on cryptocurrencies.
Brooks joined the OCC from Coinbase’s legal team at the beginning of the year upon the resignation of Joseph Otting. Within the Treasury, the OCC is charged with managing the federal government’s relationship to national banks. Given Brooks’ background, it’s no surprise that crypto was on his mind as a means of advancing the U.S. banking system when he joined.
There is a catch. Donald Trump appointee Steven Mnuchin leads the Treasury, and it was Trump appointee Otting who named Brooks as his acting successor. Just weeks ago, Trump nominated Brooks to the position, but that nomination is waiting on Senate confirmation, and the clock is ticking. Given ties to President Trump, it is no surprise that the relationship with Democrats on Congressional committees responsible for overseeing these offices can get testy.
At the beginning of November, Brooks appeared before the House Financial Services Committee and the Senate Banking Committee to report on the OCC’s activities. As mentioned before, it was Democrats from the former committee who criticized Brooks’ focus on crypto as a distraction from the duties of expanding financial access. And indeed, Chairwoman Waters (D-CA) wrote a series of criticisms of Otting and Brooks over their handling of the Community Reinvestment Act.
However, Democratic representatives like Houston’s Al Green, who has spent many years backing minority financial access on the Financial Services Committee, seemed impressed with Project REACh at last month’s hearing.
For its part, Project REACh’s name seems to be not only a reference to extending a hand to those left out of the financial system; it also seems to be an effort to stretch across the aisle in the face of partisan gridlock.
OCC Leader Brian Brooks: ‘Nobody’s Going To Ban Bitcoin’
Forthcoming regulations are “going to be a lot less bad than people will worry about.”
Brian Brooks, the head of the Office of the Comptroller of the Currency, said regulators are not looking to “kill” Bitcoin (BTC) but instead ensure its smooth integration into the financial system.
In An Interview With CNBC’s Squawk Box On Friday, Brooks Said:
“We’re very focused on getting this right. We are very focused on not killing this, and it is equally important that we develop the networks behind Bitcoin and other cryptos as it is that we prevent money laundering and terrorism financing.”
The Office of the Comptroller of the Currency is the bureau of the Treasury Department that supervises federal banks.
Brooks’ comment was in response to a question about whether the administration of Donald Trump was planning to roll out potentially damaging cryptocurrency regulations before the end of its term. Brian Armstrong, CEO of Coinbase, brought attention to this issue last month in a series of tweets explaining why stringent regulations targeting self-hosted crypto wallets would be a bad idea.
When Asked About Whether We Can Expect New Regulations By The End Of President Trump’s Term, Brooks Said:
“I think you’re going to see a lot of good news for crypto by the end of the Trump term. Some of it is going to have to do with banks connecting to blockchains, some of it is going to be more clarity around the nature of these assets.”
While Acknowledging That It’s A “Dangerous World Out There,” Brooks Said:
“Nobody’s going to ban Bitcoin. Nobody’s going to ban some of these transmission technologies.”
Waters Seeks Rescission of OCC Guidance; May Be Part of Anti-Trump, Anti-Crypto Offensive
U.S. Representative Maxine Waters, who chairs the powerful House Financial Services Committee, wants President-elect Joe Biden to rescind or monitor all of the cryptocurrency-related guidance issued by the Office of the Comptroller of the Currency (OCC).
Waters’ comments in a letter Friday follows weeks after fellow Democratic members of the House Financial Services Committee criticized the OCC’s crypto-related actions during the COVID-19 pandemic.
It also comes days after those same members introduced a bill that would require stablecoin issuers to seek bank charters and secure regulatory approval to issue tokens,
In this light, Waters’ action is bound to be seen as part of a coordinated effort to impose more severe regulatory oversight on stablecoins, if not all cryptocurrencies, as a way to undo what she termed the harms of President Donald Trump’s administration.
“As you begin to carry out the mandate given to you by the American people to restore trust in the federal government, I would like to highlight several areas where you and your team should immediately reverse the actions of your predecessors,” she wrote.
In her letter, Waters (D-Calif.) called on Biden to rescind guidance by the OCC that national banks may hold stablecoin reserves as a service to bank customers.
Waters also is recommending that similar guidance by the OCC that allowed federally chartered banks and federal savings associations to provide cryptocurrency custody services for customers be rescinded.
Each of these recommendations would undo work conducted by Brian Brooks, the Acting Comptroller of the Currency. Brooks was recently nominated to serve a full five-year term by Trump.
“Your appointed officials at the Office of the Comptroller of the Currency (OCC) must also not assume, as their predecessors have, that a law Congress passed over 150 years ago somehow gives, them authority to provide a national bank charter to non-bank fintech or payment companies,” she wrote.
Under a section on financial stability, Waters wrote that the Financial Stability Oversight Council and Office of Financial Research should publish their analysis on developments and the existing regulatory framework around digital assets and distributed ledger technology.
If Waters and the three Democratic sponsors of the bill – Rashida Tlaib (D-Mich.), Jesús “Chuy” García (D-Ill.) and Stephen Lynch (D-Mass.) – are indeed intent on rolling back the OCC’s pro-crypto guidance as a way to undo what they perceive as Trump’s legacy, an assertion earlier Friday by Brooks that “we’re very focused on not killing (crypto innovation)” may prove hollow.
The chairman finds himself in an unenviable position. On the one side, the outgoing administration is rumored to be planning to issue self-hosted wallet regulation, a plan that already has the crypto industry up in arms. Now, the move by Waters along with the Democratic representatives may bode poorly for the crypto space in the U.S., particularly should the GOP lose the Georgia Senate runoff and thus control of the Senate.
Former Ripple Advisor Set To Become Comptroller Of The Currency: WSJ
President Joe Biden looks set to appoint another former crypto executive to head up the Office of the Comptroller of the Currency.
According to the Wall Street Journal, a former member of Ripple’s board of advisors directors is likely to become the next Comptroller of the Currency.
The report cites insiders “familiar with the matter” who expect President Biden to nominate former Treasury Department official, Michael Barr, to the top post overseeing national banks.
The position as Comptroller of the Currency serves as the administrator of the federal banking system, and is the chief officer of the Office of the Comptroller of the Currency (OCC). The WSJ described it as one of the most powerful banking regulators:
“The comptroller oversees hundreds of bank supervisors stationed inside large U.S. financial firms, making the person in the job one of the most powerful bank regulators.”
The official decision is yet to be finalized and the WSJ was unable to verify the story with comments from the White House, the Treasury Department, or Barr himself.
If approved, Michael Barr would be the second appointee with cryptocurrency experience in the position following former Coinbase executive Brian Brooks, who stepped down last week after eight months as the Trump administration’s acting comptroller.
Barr was appointed as a member of the Advisory Board of Ripple Labs in 2015. At the time he was keen to foster innovation in the payments sector, stating;
“Our global payments system is badly outdated. I think innovation in payments can help make the financial system safer, reduce cost, and improve access and efficiency for consumers and businesses alike.”
President Biden’s team also considered law professor at the University of California, Mehrsa Baradaran, for the position.
The Biden administration has also tapped crypto-knowledgable Gary Gensler as the most likely candidate to head the Securities and Exchange Commission. The former Chairman of the Commodity Futures Trading Commission is known to be more positive towards decentralization and financial digitization than the previous inhabitant in the role.
Crypto Custodian Protego Gets National Charter From The OCC
Protego joins Anchorage as the first string of digital asset firms to get national trust bank licensing.
The Office of the Comptroller of the Currency has granted another crypto firm a national charter.
Per an announcement shared with Cointelegraph today, Washington-based institutional crypto custodian Protego is the second crypto-native firm to get national licensing from the OCC.
The new charter is conditional, and Protego is authorized as a national trust bank rather than a traditional bank, meaning that it will not handle deposits. Interestingly, Protego is a relatively new firm and is still in the process of organizing. It will have 18 months to launch operations before the current charter expires.
The OCC is the office of the U.S. Treasury responsible for regulating national banks. Over the past year, it has made much work of integrating crypto into that purview, including giving the first national charter of this kind to Anchorage just last month.
Not everyone has been happy with the OCC’s interest in onboarding crypto firms. A consortium of state banking regulators recently filed suit against the OCC over Figure’s application for a national charter, claiming that the OCC is stretching the definition of a bank beyond recognition.
Bitcoin Is At A ‘Tipping Point’ In International Trade, Citi Says
Mainstream adoption is within Bitcoin’s grasp, according to Citi analysts.
The world’s largest cryptocurrency, Bitcoin (BTC), is at a defining moment in history, according to analysis from American investment bank Citigroup.
Bitcoin is now at a “tipping point” to either become the preferred currency for international trade or face a “speculative implosion,” Citi analysts reportedly said.
According to a Reuters report Monday, Citi analysts are confident that Bitcoin is on the cusp of going mainstream. According to the report, Bitcoin’s tremendous potential has been fueled by recent big Bitcoin moves by companies like Tesla and Mastercard.
Citi analysts wrote, “There are a host of risks and obstacles that stand in the way of Bitcoin progress. But weighing these potential hurdles against the opportunities leads to the conclusion that Bitcoin is at a tipping point.”
Citi analysts also hinted that the mainstream adoption of Bitcoin could be helped along by digital currency developments like central bank digital currencies and fiat-pegged stablecoins.
The news comes amid a major correction on the cryptocurrency market, with Bitcoin dropping below $44,000 yesterday after hitting a new all-time high of above $58,000 earlier in February. At publishing time, Bitcoin is trading at $47,285, up around 4.5% over the past 24 hours, according to data from Cointelegraph’s Bitcoin price index.
According to some experts, global regulation could be one of the biggest hurdles for Bitcoin’s adoption by institutional investors. Bridgewater director of investment research Rebecca Patterson said on Feb. 24 that regulatory certainty around Bitcoin would solve some of the cryptocurrency’s biggest problems associated with high volatility and low liquidity.
Bitcoin Rises As Citigroup, Goldman Find Allure Hard To Resist
Bitcoin rallied after a volatile weekend session, riding a broad resurgence in risk assets, while Citigroup Inc. and Goldman Sachs Group Inc. warm up to the largest cryptocurrency.
The digital asset rose as much as 9.4% before paring some gains to trade around $48,500 as of 2:19 p.m. in New York. Prices last week suffered the worst decline since March and dipped as low as $43,000 on Sunday. Bitcoin climbed to a record $58,350 on Feb. 21.
In a report by Citigroup’s Global Perspectives & Solutions, strategists laid out a case for Bitcoin to play a bigger role in the global financial system, saying the cryptocurrency could become “the currency of choice for international trade” in the years ahead. Bitcoin has advantages over the current global payment system, such as its decentralized design, lack of foreign exchange exposure and traceability, the strategists said.
Goldman restarting a trading desk for cryptocurrencies, a person familiar with the effort said. The Wall Street bank will begin offering Bitcoin futures among other products by mid-March after halting a similar effort started in 2018, according to the person, who asked to to be named because the plans haven’t been announced.
“The more banks that come out with constructive comments on Bitcoin, the more likely the speculative bubble will continue to grow,” said Ed Moya, senior market analyst for OANDA.
Citigroup’s full-throated backing of Bitcoin shows that crypto is continuing to win over the world’s biggest financial institutions. Dan Loeb, head of Third Point LLC, said in a Twitter post that he’s been “doing a deep dive into crypto lately,” adding that “it is a real test of being intellectually open to new and controversial ideas.”
While banks continue to dip their toes deeper into the world of digital assets, a small group of corporations are busy snapping up coins to add to their balance sheets. MicroStrategy Inc., announced Monday that it purchased an additional 328 Bitcoins increasing its pile to about 90,859. The company’s holdings are now worth over $4 billion.
Bitcoin plunged 21% last week as investors dumped speculative assets amid a run-up in bond yields. The volatility has raised questions about whether it can act as a store of value and hedge against inflation. Detractors have maintained the digital asset’s surge is a speculative bubble and it’s destined for a repeat of the 2017 boom and bust.
“Bitcoin’s wild ride is far from over, but it seems another attempt at $50,000 could be in the cards if the bond rout is truly over,” Moya said. “Bitcoin can survive a steady rise in Treasury, but not a skyrocketing move like we saw last week.”
Elsewhere, China’s Inner Mongolia banned cryptocurrency mining and declared it will shut all such projects by April, spurring concern the communist nation will take more steps to eradicate the power-hungry practice.
The autonomous region, a favorite among the industry because of its cheap power, also banned new digital coin projects, according to a draft plan posted on the Inner Mongolia Development and Reform Commission’s website Feb. 25. The aim is to constrain growth in energy consumption to about 1.9% in 2021.
The sheer amount of energy needed to mine Bitcoin and the prospect that governments will create more obstacles for the largest cryptocurrency point to the token losing “most of its value over time,” BCA Research Chief Global Strategist Peter Berezin wrote in the report released Friday.
Federal Credit Union Regulator Should Look At Crypto Rules, Official Says
The NCUA could look at the Office of the Comptroller of the Currency’s crypto guidance as an example, Kyle Hauptman said.
The National Credit Union Administration (NCUA) could be the next federal regulator to dip its feet into crypto-related rules.
Credit unions will want to look at digital assets and blockchain technology, said NCUA Vice Chairman Kyle Hauptman in a speech Wednesday. Speaking to the Credit Union National Association Governmental Affairs Conference, Hauptman said his regulatory agency may consider providing guidance around the treatment of digital assets.
Credit unions are non-profit, member-owned financial institutions that provide similar services to banks in the U.S. While national banks are regulated by the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC), credit unions are overseen by the NCUA.
“NCUA may want to look at the actions taken by another regulator, the OCC. That agency recently provided guidance around custody of digital assets and the use of stablecoins for payments,” Hauptman said during his speech.
“Stablecoins, as you may know, are cryptocurrencies designed to minimize price volatility, and the OCC’s guidance moves the U.S. closer to the real-time payment systems already used in other countries.”
The NCUA may not want to recreate every piece of guidance the OCC published, but Hauptman said he looks forward to working with NCUA Chairman Tood Harper to see what can help credit unions innovate.
Hauptman told CoinDesk prior to his speech that the NCUA is the federal regulator and insurer for the more than 5,000 credit unions in the U.S., which collectively hold some $1.5 trillion in deposits.
“At some point, we’ll speak with NCUA staff about doing a side-by-side with what the OCC did and see what we do or don’t want to adapt for credit unions. NCUA benefits a bit from ‘somebody else went first,’ so we can, where appropriate, build on the OCC’s experience,” he told CoinDesk.
He pointed to ATMs and remote deposits as examples of past innovative tools that credit unions implemented.
He likened decentralized finance (DeFi) and stablecoins to the introduction of smart phones and mobile banking.
“Smart phones didn’t exist 20 years ago and thus there weren’t regulations around mobile banking,” he said. “Policymakers then obviously had to provide clarity or risk seeing regulated institutions slowly lose business to new technologies.”
Thai Bank’s Venture Arm Invests In Institutional Crypto Custodian Anchorage
SCB 10X, the venture arm of Thailand’s oldest bank, is participating in an $80 million Series C fundraising round for institutional crypto custodian and digital asset platform Anchorage.
Just last month, SCB 10X — the venture arm of Siam Commercial Bank — had announced its new $50 million fund dedicated to investments in global blockchain, decentralized finance and digital asset startups. The banking institution is Thailand’s oldest bank, established by royal charter back in 1907, and its latest forays into blockchain via SCB 10X are already underway.
According to a report on March 5, SCB 10X is a contributor to the recent $80 million Series C raised by Anchorage, a crypto custodian and digital asset platform that received the United States’ first federal digital asset banking charter at the start of this year.
The Series C was led by GIC, Singapore’s sovereign wealth fund, with investments from a16z, Blockchain Capital, Lux Capital and Indico Capital. The report of SCB 10X’s involvement does not reveal the amount contributed by the fund, although its chief venture and investment officer, Mukaya Panich, has given some clue as to the significance of SCB 10X’s choice of Anchorage:
“We […] look forward to bringing Anchorage’s world-class cryptocustody solutions to Siam Commercial Bank’s customer base who are interested in having exposure to digital assets, and other potential users in Southeast Asia.”
Panich has been actively involved in discussions with blockchain industry members about the future of DeFi integration with traditional finance. Prior to the creation of its dedicated fund, SCB 10X had already invested in American cryptocurrency lender BlockFi, as well as collaborating with Alpha Finance Lab in November of last year.
In terms of broader cryptocurrency developments in Thailand, this week notably saw the country’s Securities and Exchange Commission backtrack on a previous, controversial plan to enact a 1 million baht (roughly $33,000) minimum annual income requirement for crypto investment in the domestic market.
IBM Ventures Further Into Crypto Custody With METACO, Deutsche Bank Tie-Ups
Big Blue wading deeper into these waters speaks to a broader change in the posture of corporates toward public blockchains.
IBM, known for pitching banks and blue-chip firms on private blockchain technology (the sector’s equivalent of alcohol-free beer) is taking decisive steps toward working with the hard stuff.
The 110-year-old computing giant is licensing its software to METACO, a Switzerland-based firm that specializes in custodying digital assets for financial institutions, the companies said Thursday. This is the business of safeguarding the cryptographic private keys that control a cryptocurrency wallet, the 21st-century version of protecting a vault full of gold bars.
Separately, Deutsche Bank, Europe’s eighth-largest bank, is enlisting IBM’s help to build its planned crypto custody and trading services offering, two people familiar with the arrangement told CoinDesk. The parties are close but no deal is signed yet.
These are not IBM’s first steps into crypto custody; Big Blue has been quietly making moves into digital asset safekeeping since at least early 2019. Most recently, IBM’s Cloud Hyper Protect was teaming up with Zug, Switzerland-based decentralized finance (DeFi) data oracle, DIA (Decentralised Information Asset).
IBM’s further wading into these waters speaks to a broader change in the posture of corporates toward crypto. In the late 2010s, the preferred approach for banks and other large companies was to try to shoehorn blockchain, the decentralized recordkeeping method pioneered by Bitcoin creator Satoshi Nakamoto, into their processes to create more efficient databases.
Like many big companies, IBM enthusiastically backed the enterprise blockchain trend, which has turned out to be a slow and relatively fruitless grind.
Meanwhile, financial institutions have woken up to public blockchains and crypto assets, and that’s where the action is, the sector’s well-known volatility and manifold operational and regulatory risks notwithstanding. Banking being the biggest client industry sector at IBM, it’s the natural infrastructure choice for most banks and large financials looking for a toehold in the growing crypto asset space.
“Large enterprises are going to focus on where the rapid growth of demand is, and right now that is on decentralized finance services on public blockchains,” said Paul Brody, blockchain lead at consulting giant EY. “Firstly, transaction-centric banks want to offer crypto assets to their customers, and secondly, firms want to tokenize traditional assets, and plug them into the DeFi.”
Here Come The Suits
The bitcoin price rally this year has caught many market participants by surprise, leaving some native crypto firms looking to improve their infrastructure, and banks scrambling to build out digital asset strategies, according to Adrian Patten, co-founder of Cobalt, a firm that’s trying to rewire crypto to work as smoothly as institutional foreign exchange trading.
“IBM naturally sells to banks and is very well positioned,” said Patten, whose firm has also partnered with METACO around crypto custody. “A core part of providing custody is the secure management of keys. Many firms use IBM hardware for that and it’s going to be interesting to see what they do next to enhance the functionality of what’s being offered.”
Under the deal announced Thursday, METACO will protect against data breaches and cyber threats using IBM’s Cloud Hyper Protect Services and “Keep Your Own Key” (KYOK) encryption software. The solution can be offered wholly in the cloud (i.e., in IBM’s data centers), on premises (METACO clients’ servers), or in a hybrid environment, the companies said.
METACO has emerged as a go-to digital asset custody provider for banks and financial institutions, particularly in crypto-friendly Switzerland and across Europe, having provided tech to allow safekeeping of bitcoin and other virtual assets for megabanks Standard Chartered, BBVA and the Swiss-based division of Russia’s GazpromBank.
Neither IBM nor METACO would make executives available for interviews. Deutsche Bank did not return requests for comment.
Hillery Hunter, An IBM Fellow, Vice President And The Chief Technology Officer Of IBM Cloud, Said In A Statement:
“As companies such as METACO continue to help the world’s top banks and exchanges manage their digital assets, IBM’s confidential computing capabilities help its clients ensure their data and processes are managed securely, bringing trust into the ecosystem and providing privacy assurance.”
“This integration will allow us to deliver greater levels of security and trust to our clients as they innovate in the digital asset space,” said Adrien Treccani, the CEO and founder of METACO.
Paxos Receives ‘Preliminary Conditional Approval’ For US Bank Charter
The stablecoin issuer has nabbed a banking license, but it doesn’t mean they’ll be doing any banking in the traditional sense.
The U.S. Office of the Comptroller of the Currency (OCC) has granted today stablecoin company and PayPal collaborator Paxos a federal charter to form a national trust bank — just the third such charter the OCC has granted crypto-native companies.
Paxos joins custody firm Achorage, who was the first to receive a charter in January, and fellow custodian Protego, which received their conditional charter in February.
As with the previous two charters, the “bank” label is somewhat misleading in that Paxos will not immediately be handling deposits. Instead, they received a “Fintech Charter” — a type of banking charter that was pioneered by former acting Comptroller of the Currency Brian Brooks.
The charter permits Paxos to conduct activities such as “custody services for digital assets; custody and management of USD stablecoin reserves; payment, exchange, and other agent services; other cryptocurrency services, such as trading services and enabling partners to buy and sell cryptocurrency; and “know your customer” as a service,” per an approval letter from the OCC sent to Paxos general counsel Dan Burstein.
The letter notes that all of these activities are currently being conducted by the Paxos Trust Company operating with a New York BitLicense; the charter allows a new Paxos entity to become a federally-regulated organization.
The OCC’s letter also indicates that there was some resistance to the issuance of the charter from the traditional banking sector.
During a public comment period, the OCC received a “letter signed by a number of trade groups representing banks” arguing that “the proposed activities do not align with OCC precedent with respect to fiduciary activities conducted by national trust banks,” and that “the application does not provide sufficient information on the Bank’s business model.”
However, the OCC countered that they “received sufficient information to make an informed decision” and ultimately determined that “it is appropriate to grant preliminary conditional approval to allow the organizers to proceed with the organization of the Bank.”
The approval follows a string of high-profile wins for Paxos. In December, the company raised $142 million in a funding round, and in April applied for a clearing license following a successful pilot of same-day stablecoin settlement with Credit Suisse, among other institutions.
Citigroup Considers Crypto Amid Surge In Customer Demand On Wall Street
Trading, financing and custody services are being pursued by the investment bank.
Citigroup is reportedly considering offering crypto-related services to its customers in response to rising demand, specifically from asset managers and hedge funds.
The financial services firm’s global head of foreign exchange, Itay Tuchman, told the Financial Times on Friday that the investment bank was already exploring the possibility of providing crypto services to its clients.
Trading, financing and custody services are being discussed, but Tuchman said the firm would not be rushed into launching something that could worry regulators.
“We shouldn’t do anything that’s not safe and sound. We will jump in when we are confident that we can build something that benefits clients and that regulators can support,” he said.
Tuchman said the bank witnessed an increase in the number of clients inquiring about Bitcoin (BTC), starting in August 2020. At the time, the coin price had just climbed 33% in the span of a month, from $9,000 to $12,000, and the global cryptocurrency market capitalization was around one-tenth of what it is now.
But Citigroup is apparently in no hurry to jump on the bandwagon, even with Bitcoin currently perched at $55,000. Tuchman said the firm wouldn’t fall victim to its own fear of missing out and would instead play the long game with cryptocurrency, which the bank believes will still be around for quite a while.
“I don’t have any FOMO [fear of missing out], because I believe that crypto is here to stay and that we are just at the very beginning of the market. This isn’t a space race. There is room for more than just one flag,” said Tuchman.
Fed Director Michael Hsu To Succeed Brian Brooks At OCC
Hsu was part of the Fed’s bank supervision division. Brooks, now CEO of Binance.US, pushed crypto-friendly rules while in D.C.
U.S. Treasury Secretary Janet Yellen will appoint Federal Reserve Associate Director Michael Hsu as the first deputy comptroller and acting comptroller of the Office of the Comptroller of the Currency (OCC), a federal bank regulator in the U.S.
Hsu will succeed current Acting Comptroller Blake Paulson, who assumed the position after former Acting Comptroller Brian Brooks stepped down in January. At the Fed, Hsu was part of the supervision and regulation division, meaning he oversaw major banks.
“Mike has devoted his career to the stability and supervision of America’s banking system. He is among the most talented and principled regulatory officials that I have had the pleasure of working with, and I am confident he will execute this role with integrity and efficiency,” Yellen said in a statement on Friday.
The OCC made waves during the past year under Brooks for publishing letters and other forms of guidance aimed at bringing the crypto industry into the U.S. financial system. The guidance included a confirmation that banks can provide services to crypto startups and stablecoin issuers as well as custody for digital assets.
Under Brooks, the OCC also granted the first crypto company a federal trust charter. Anchorage received a charter to form a federally regulated entity in January. Since then, two other companies – Protego and Paxos – have also earned OCC trust charters.
More Attention On Crypto
It’s unclear how Hsu will approach the issue of digital assets, or whether he is U.S. President Joe Biden’s pick for a full-term comptroller.
“My focus as Acting Comptroller will be on solving urgent problems and addressing pressing issues until the 32nd Comptroller is confirmed,” Hsu said in a statement published by the OCC.
Other federal regulators, however, are beginning to get involved in the crypto industry. The Fed published a proposal to allow nontraditional chartered entities to access its accounts directly, rather than move through an intermediary bank.
While it’s unclear whether that will benefit OCC-chartered crypto firms, crypto companies operating with a Wyoming Special Purpose Depository Institution may gain access, taking them one step closer to becoming a full bank.
In testimony on Thursday before the House Financial Services Committee, U.S. Securities and Exchange Commission Chairman Gary Gensler also suggested that Congress could create a federal regulator for crypto.
Nebraska Bill Allowing Banks To Offer Crypto Services Moves Forward
Nebraska senators have favored a measure that would allow state banks to facilitate crypto transactions like those in Wyoming.
Nebraska lawmakers are moving forward with an initiative that would allow state banks to offer cryptocurrency services.
State Senators favored the measure through the first of three required votes in the legislature, with 39 lawmakers voting to advance the bill for enrollment and initial review on Sunday.
Introduced by Republican Mike Flood in January, Legislature Bill 649 aims to adopt the Nebraska Financial Innovation Act and create digital asset depository institutions, as well as provide for charter, operation, supervision and regulation of such institutions.
The initiative would reportedly make Nebraska the second state in the United States to set up a formal charter for cryptocurrency-powered banks, allowing them to facilitate crypto transactions. Wyoming was the first state to do so, chartering its first crypto bank in September 2020.
Senator Flood said that he introduced the bill after talking with an entrepreneur friend who decided to move into the cryptocurrency industry in Wyoming. Flood said that Nebraska has an opportunity to become an early adopter of cryptocurrencies with the measure, which could help it benefit from technology and finance jobs. “This is a once-in-a-lifetime opportunity not only for my district but the state of Nebraska,” he said.
Some lawmakers questioned whether it was right for the state to move into crypto, expressing skepticism about the consequences of the measure. “This bill is not anywhere close to being in a form where it could pass,” Senator Steve Erdman reportedly said.
As previously reported by Cointelegraph, Flood originally initiated two crypto-related bills, one of which outlines requirements for banks providing custodial services, providing classifications of digital assets and related technology, such as smart contracts and private keys. The regulatory initiative has not moved forward since a related hearing in February.
Nebraska Signs Law To Authorize State-Chartered Banks To Custody Crypto
The bill was co-authored with the cryptocurrency firm Telcoin and introduced by Republican state senator Mike Flood.
A crypto-friendly bill — co-authored by a cryptocurrency firm and first introduced by Republican state senator Mike Flood this January — was signed into law today in Nebraska.
The Nebraska Financial Innovation Act was one of Senator Flood’s first initiatives, introduced scarcely two weeks after being sworn into office. It will authorize the regulation of digital asset depositories in the state by creating a new state banking charter tailored to digital asset-backed financial services. Republican lawmakers outnumber Democrats almost two-to-one in the state legislature (32 to 17) and numbers for this week’s final vote were 46–2.
Signed into law as Legislative Bill 649, the Act means that financial institutions — e.g., banks, building and loan associations — can operate digital asset depository businesses, for which Nebraska will provide “charter, operation, supervision, and regulation.” Under the terms of the Act, these institutions can be chartered in the United States or by a foreign state agency.
Telcoin, a telcoms-focused blockchain firm that operates services on the Ethereum network, has been actively involved in drafting the bill. The company found a ready partner in Senator Flood, who began the year by pledging to make Nebraska into a fintech hub and has a parallel initiative, the Transactions in Digital Assets Act, underway. He told reporters in January:
“One of the things that we need to do is create high-paying, high-skilled jobs. We also need to create jobs that bring wealth into the community […] I have been working with someone I’ve known for a very long time and he’s in the cryptocurrency business. He has an interest in locating in Norfolk. There is great opportunity in this area.”
Telcoin’s press release today cites Flood welcoming Telcoin to Nebraska and saying that “this new new charter sends the right message that Nebraska is open for business in this exciting new space.”
While crypto custody was already permitted for federally chartered banks in the United States last July, the Nebraska Act will extend these rights to institutions chartered at a state level. The state of Wyoming is the only U.S. state to have preempted Nebraska in this regard, chartering its first crypto bank back in September 2020.
FDIC Chief Says Agency Wants To Know More About Digital Assets
“At the FDIC we have been watching [digital asset] developments closely, and plan to issue a request for information to learn more,” Jelena McWilliams said.
The Federal Deposit Insurance Corp. (FDIC), one of the federal banking regulators in the U.S. and one of two entities that provide deposit insurance to federally regulated institutions, is taking a look at how banks are exploring digital currencies, its top official said Tuesday.
Speaking to the Federalist Society, FDIC Chairwoman Jelena McWilliams said the federal regulator wants to hear from banks about how they are approaching the digital asset market and what role the FDIC should play.
“At the FDIC, we have been watching such developments closely, and plan to issue a request for information to learn more what banks are doing, what banks are considering doing and what, if anything, the FDIC should do in this space,” she said.
McWilliams noted that financial technology firms have been becoming more engaged in the U.S. banking sector, particularly through the COVID-19 pandemic, and the FDIC wants these fintech firms to collaborate with banks.
The FDIC joins other federal bank regulators in exploring the world of digital assets. The Federal Reserve, the U.S.’s central bank, last week published a proposal to allow certain chartered financial institutions access to its accounts. That move would benefit Wyoming Special Purpose Depository Institutions, which include Kraken Bank and Avanti, two crypto firms.
The National Credit Union Administration, a federal regulator that oversees credit unions, is dipping its toes into crypto, as well. Earlier this year, NCUA Vice Chairman Kyle Hauptman said his agency should explore issuing guidance for digital assets and assess how federal credit unions can interact with the industry. The NCUA has a job opening for a position that involves advising the agency on how to deal with digital assets.
The Office of the Comptroller of the Currency (OCC), however, has taken the most concrete steps in bringing the banking sector together with the digital asset industry. Under former Acting Comptroller Brian Brooks, the OCC published several pieces of guidance outlining how banks can interact with digital assets, and has now granted multiple federal trust charters to crypto firms.
The U.S. government is also researching a digital dollar, a central bank digital currency version of the greenback.
In her speech Tuesday, McWilliams said other countries are also evaluating sovereign digital currencies. She pointed to China’s digital yuan as one example.
“Far from merely a domestic endeavor, the digital yuan has the potential to expand internationally,” she said. “One recent estimate is this currency could eventually reach 1 billion users, all while bypassing U.S. dollar-related systems and ultimately the U.S. sanctions regime as well. This should give us a lot to think about.”
Senate Banking Chairman ‘Concerned’ By OCC’s Crypto Charters
Sherrod Brown specifically pointed to the OCC trust charters granted to Paxos, Protego and Anchorage.
Sen. Sherrod Brown (D-Ohio), the chairman of the Senate Banking Committee, told Acting Comptroller Michael Hsu that he is “concerned” about the Office of the Comptroller of the Currency’s (OCC) granting national trust charters to “financial and non-financial companies.”
Some of the companies seeking OCC charters are unable to meet the OCC’s regulatory requirements, Brown said in the open letter, first reported by Politico. The lawmaker specifically pointed to the three crypto companies that have secured conditional OCC trust charters in the past five months: Paxos, Protego and Anchorage, and asked that Hsu “reassess” the conditional trust charters.
These companies market their “federally-chartered status,” Brown said.
“In other words, these companies suggest that the OCC’s approval of their charters guarantees their business model is as safe, stable and dependable for customers as a local community bank,” Brown’s letter said, adding:
“The fact is, given the many uncertainties present in the digital asset landscape as identified by other regulators, the volatility of digital asset valuations, and the disproportionate influence individuals can have on entire cryptocurrency markets, the OCC is not in a position to regulate these entities comparably to traditional banks.”
The Senator also said it was “unclear” whether the OCC had conducted the “appropriate due diligence” before granting the three conditional charters, pointing specifically to former Acting Comptroller Brian Brooks’ tenure.
Brooks encouraged crypto companies to seek a trust charter because it was “just a faster charter to get,” Brown wrote.
“I urge you to review the procedures and guidelines followed within the OCC regarding the evaluation and approval of the Anchorage, Paxos and Protego charters to ensure that the OCC’s supervision and licensing standards remain both rigorous and equitable among charter applicants,” Brown said.
Brown’s letter comes on a day of extreme volatility in the crypto market, with bitcoin (BTC, -0.11%) falling close to $12,000 before rebounding nearly $8,000. Much of the market remains in the red over the past 24 hours.
Hsu, who took office barely two weeks ago, has already indicated that the OCC is reviewing how it approaches digital assets in testimony before the House Financial Services Committee earlier this week.
Importantly, the trust charters Anchorage, Protego and Paxos have are conditional. The OCC would have to grant a final trust charter after a number of months.
“Since its inception, Paxos has sought to be the most regulated, compliant and trusted operator in the crypto and blockchain infrastructure industry,” Paxos spokesperson Rebecca McClain said in a statement, adding:
“Six years ago, Paxos was the first company to secure a New York Department of Financial Services (NYDFS) trust charter. That charter requires all customer crypto assets to be held in bankruptcy remote, segregated accounts. Paxos is not involved in deposit-taking or consumer lending. All Paxos issued stablecoins have been approved by our regulators and are fully backed by US dollars and US Treasuries in FDIC-insured, US bank accounts. The quality of our Board of Directors demonstrates our culture of compliance. We are held to the same BSA, KYC and AML standards as all NYDFS regulated banks. This oversight includes regular onsite examinations. We look forward to working with Chairman Brown to ensure that all industry players meet these same high standards.”
OCC, Fed, FDIC Mulling Forming An Interagency Policy Team On Crypto
“Prior to this meeting, Vice Chair Quarles, Chair McWilliams and I had talked about potentially putting together an interagency policy sprint team just on crypto because of exactly the concerns you’ve described,” Hsu said.
The Office of the Comptroller of the Currency (OCC), the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) may set up an interagency policy team to examine the cryptocurrency sector.
Acting Comptroller Michael Hsu told a House Financial Services Committee hearing in Washington, D.C., that he had spoken with fellow regulators Randal Quarles, vice chair at the Federal Reserve, and Jelena McWilliams, the chairwoman of the FDIC, about forming a “sprint team” around crypto. His response was to a question from Rep. Tom Emmer (R-Minn.).
“Prior to this meeting, Vice Chair Quarles, Chair McWilliams and I had talked about potentially putting together an interagency policy sprint team just on crypto because of exactly the concerns you’ve described,” Hsu said.
Later in the hearing, in a response to a question from Rep. Ted Budd (R-N.C.), Quarles said this work could include creating a legal definition for what a cryptocurrency is in the U.S.
“We are engaged with the other agencies in a joint effort to think through some of these crypto definition[s] and some of the applications in crypto areas, and I’m sure that would be part of it,” Quarles said.
Emmer, who is the new ranking member on the House Financial Services Oversight Subcommittee, asked the agency representatives how they are addressing crypto.
Quarles pointed to the Boston branch of the Fed’s work with the MIT Digital Currency Initiative in researching a central bank digital currency. McWilliams noted that the FDIC just published a Request for Information about how banks interact with digital assets.
Todd Harper, chair of the National Credit Union Administration, said his regulatory agency created an office to examine financial technology issues, which will include crypto.
“I think the rise of crypto has garnered a lot of attention,” Hsu said.
In prepared remarks published Tuesday, Hsu said the OCC was reviewing all of its pending matters, including the crypto-related guidance published over the past year.
The question of a central bank digital currency (CBDC) also came up during the hearing, with Rep. Al Green (D-Texas) asking Fed Vice Chair Quarles about the central bank’s work with MIT.
Green specifically asked how regulators could ensure cryptocurrencies aren’t used for illicit purposes like ransomware payments.
“It’s a complicated question because there’s a range of types of instruments that count as cryptocurrencies,” Quarles said.
However, any financial institutions that interact with cryptocurrencies would have to comply with existing anti-money laundering regulations, he said.
A CBDC specifically could prevent ransomware payments, Quarles said, hinting that know-your customer (KYC) rules may play a role here. However, he also noted the Fed has not committed to launching a digital dollar just yet.
“Whether we would have a central bank digital currency is way premature at this point,” Quarles said.
New OCC Head Requests Review Of Cryptocurrency Rules
The new head of the OCC thinks that the authority’s crypto rulemaking under Brian Brooks was not done in full coordination with all stakeholders.
The United States’ banking regulator, the Office of the Comptroller of the Currency, is set to review cryptocurrency-related rule-making following the departure of Brian Brooks.
Michael Hsu, the newly appointed acting comptroller of the currency, has requested a staff review of former OCC rule-making regarding the crypto industry as part of his testimony before the House Financial Services Committee on Wednesday.
In prepared remarks, Hsu asked the OCC staff to review its cryptocurrency-related actions like updating the framework for chartering national banks and trust companies, interpreting crypto custody services as part of the banking business, and establishing an Office of Innovation. “At the OCC, the focus has been on encouraging responsible innovation. I have asked staff to review these actions,” the official said.
Hsu argued that the review of the OCC’s crypto rule-making aims to address a fragmented agency-by-agency approach to major financial trends and set a proper regulatory perimeter. “To the extent there is interagency coordination, it tends to be tactical, to deal with a pressing issue, such as Facebook’s Diem,” he noted, continuing:
“My broader concern is that these initiatives were not done in full coordination with all stakeholders. Nor do they appear to have been part of a broader strategy related to the regulatory perimeter. I believe addressing both of these tasks should be a priority.”
The new Comptroller of the Currency stressed that his focus will be ensuring that OCC-supervised banks “operate in a safe and sound manner, meet the credit needs of their communities, treat all customers fairly, and comply with laws and regulations.”
Brooks departed the OCC in January 2021 after joining in March 2020. Also the former head of the legal team at Nasdaq-listed crypto exchange Coinbase, Brooks is now the CEO of Binance.US, the United States subsidiary of the world’s largest crypto exchange, Binance.
The OCC made a number of major regulatory decisions for the crypto industry under Brook’s tenure, including the authorization of federal U.S. banks to hold reserve currencies for stablecoins. In April, the OCC granted major stablecoin company Paxos a federal charter to form a national trust bank.
US Fed, OCC And FDIC To Set Up Interagency Team For Crypto Regulations
American financial regulators are considering establishing an “interagency policy sprint team” to address fragmented cryptocurrency regulations.
Major financial regulators in the United States are considering establishing an interagency group dedicated solely to cryptocurrency matters.
Michael Hsu, the new head of the Office of the Comptroller of the Currency, announced that the agency has been in talks with the U.S. Federal Reserve and the Federal Deposit Insurance Corporation about setting up an “interagency policy sprint team” focused “just on crypto.”
At a virtual hearing of the House Financial Services Committee on Wednesday, the OCC head said that he discussed the initiative with Fed vice chairman of supervision Randal Quarles and FDIC chairman Jelena McWilliams. “This is a really important issue. The rise of crypto has got a lot of attention,” Hsu noted.
Quarles said that the Fed has been working with other agencies in a joint effort to come up with a clear regulatory framework for the cryptocurrency industry, including unified definitions, stating:
“We’re sort of focused very intently on these crypto issues with the aim of having answers and joint views fairly quickly. I’m sure that will be achievable.”
Quarles also noted the Fed’s growing efforts to explore a central bank digital currency, stating that the authority is actively involved in central bank digital currency research with international central banks. “These questions about digital currency are important. I think we need to do a very careful study of that, not just in this jurisdiction but globally as well,” he said.
New OCC Head Doesn’t Rule Anything Out In Digital Asset Guidance Review
The Office of the Comptroller of the Currency is reviewing all of the digital asset guidance issued under the leadership of former Acting Comptroller Brian Brooks.
The Office of the Comptroller of the Currency (OCC) is looking at “everything” around digital asset guidance issued last year, its current head said.
The OCC is undertaking a broad review of interpretive guidance, conditional trust charters and other issues around digital assets, said Acting Comptroller Michael Hsu in a virtual press conference Wednesday. Hsu, who took office last month succeeding former Acting Comptrollers Brian Brooks and Blake Paulson, has called for a review of a host of issues the federal bank regulator oversees.
“I’ve instructed the team, everything’s on the table, let’s think about everything, while being cognizant of factors [like] constraints around decisions that have already been made, things that have already been put out there, what the state of play is,” Hsu said. “And so you know, it’s basically encouraging my team to think broadly about everything, while being pragmatic.”
This review includes conditional national trust charters issued to a few cryptocurrency firms and applications for such charters from other companies, he said.
The ultimate goal is to determine an “overall strategy” for digital assets, he said.
It’s this same viewpoint that inspired an interagency sprint group composed of members of the OCC, the Federal Reserve and the Federal Deposit Insurance Corporation, he said.
“The instructions that we gave to the team were to really focus on, first and foremost, getting on the same page in terms of terminology,” Hsu said. “Definitions can help on an interagency basis in terms of talking about being precise.”
Once the group has created a common set of definitions, it can move to identifying risks in the digital asset sector and determine next steps around regulations.
Hsu said he hopes the different regulatory agencies that may have jurisdiction over digital assets can work together to determine the most beneficial regulatory framework, including overseeing trading platforms.
“The strongest view I have right now is that we all need to talk to each other and decide on this together,” he said. “What we need to avoid is effectively competing with each other in a way that leads to a race to the bottom.”
Former US Office Of The Comptroller Of The Currency Official Says Crypto Has Backing But Dollar Doesn’t
Former OCC acting comptroller Brian Brooks claimed that cryptocurrencies like Bitcoin “actually are backed by something.”
Brian Brooks, former acting comptroller of the currency of the United States Office of the Comptroller of the Currency, has claimed that cryptocurrencies like Bitcoin (BTC) have some backing, while the U.S. dollar may not have any.
Brooks gave his remarks in a CNBC Squawk Box interview with Joseph Kernen to unpack recent Bitcoin-related remarks by the U.S. Federal Reserve chair Jerome Powell. Earlier this week, Powell argued that cryptos like Bitcoin are “essentially a substitute for gold” but at the same time they are “not backed by anything.”
CNBC host Kernen pointed out that gold has historically been seen as a store of value, expressing confusion over Powell’s comments, stating. “He just said it’s like gold but not a store of value. Does he not think that gold is a store of value?”
In response, Brooks said that there are many reasons why people have flocked to Bitcoin over the past year, including the Fed dramatically increasing the dollar supply. “So when you do that, it means that the dollar is at least a 40% less good store of value than it was a year ago. And that is one of the reasons people opt to Bitcoin,” he stated.
In reference to the United States abandoning the gold standard under President Richard Nixon in 1971, Brooks said:
“The point I really wanna make is the dollar may not actually be backed by anything […] But cryptocurrencies actually are backed by something. They’re backed by underlying networks, and what you’re buying when you buy a crypto token — whatever it is Bitcoin or anything else — you’re buying a piece of a financial network built to transact all kinds of stuff.”
Brooks stated that the increasing number of network applications over the past few years is the main reason that the crypto industry is worth almost a $2 trillion today. “I believe in the wisdom of crowds. I think that crowds are telling you that these networks are where finances are going in the future. I wanna be part of that,” he concluded.
U.S. authorities have been actively investigating the concept of a digital dollar. On Monday, Powell said that the Fed would not proceed with the digital dollar without support from Congress.
Acting OCC Head Warns That ‘Fools Gold’ In DeFi Reminds Him Of Lead-Up To GFC
While crypto has weathered past hacks, scams and crashes, acting OCC head Michael Hsu warns that the risks may be multiplying as the technology goes mainstream.
Acting head of the United States Office of the Comptroller of the Currency (OCC) Michael Hsu has warned that the exotic financial products developed in some quarters of crypto and DeFi are reminiscent of those that precipitated the 2008 Global Financial Crisis (GFC).
Speaking before the Blockchain Association on Sept. 21, Hsu warned that “innovation for innovation’s sake […] risks creating a mountain of fool’s good,” drawing analogies between the rapid proliferation of digital asset derivatives and the explosion in mortgage and debt derivatives, such as the Credit Default Swaps (CDS) that preceded the 2008 global financial crisis:
“I have seen one fool’s gold rush from up close in the lead up to the 2008 financial crisis. It feels like we may be on the cusp of another with cryptocurrencies (crypto) and decentralized finance (DeFi) […] Crypto/DeFi today is on a path that looks similar to CDS in the early 2000s.”
Hsu notes that “it was nearly impossible to hedge the risk of a borrower defaulting” prior to the creation of CDS in the mid-1990s. However, by the time he joined the SEC in 2004, the acting OCC head recounted that credit derivatives promised investors higher risk-adjusted returns using innovative products that “relied heavily on math and financial engineering.”
“They believed they were leading a financial revolution, creating an entirely different asset class, using an entirely different set of models. Sound familiar? Today, programmers and coders, instead of quants and financial engineers, are the core innovators.”
Hsu asserts that by the time the crisis unfolded, the original mission of CDS “to create an instrument that could improve risk management and thus lower the cost of credit” had been “turned onto itself, cloaked in impenetrable math and jargon, and supercharged with yield and fees to ensure growth.”
Drawing parallels between exotic DeFi derivatives and the systemic risk that underpinned the collapse of the U.S. housing market in 2008, Hsu noted that “most innovation seems focused on enhancing trading” in crypto now rather than realizing the vision for greater financial autonomy articulated by Satoshi Nakamoto in the Bitcoin Whitepaper.
Hsu cites several risks that could destabilize the crypto sector including “a run on a large stablecoin […] forks, hacks, rug pulls, vampire attacks, and flash loans.” While acknowledging that crypto has withstood all of the aforementioned incidents thus far, Hsu warns that such threats could loom larger as the cryptocurrency user base grows:
“My hypothesis is that until recently, most users have been hardcore believers in the technology and thus are both understanding of the risks and willing to forgive them.
As the scope and reach of crypto/DeFi expands, though, more mainstream users, with regular expectations of safe and sound money, will dominate and drive reactions.”
Ultimately, Hsu’s outlook for crypto isn’t entirely bleak, with the official concluding that if the industry “applies the lessons from the 2008 crisis — anchor innovation in clear purpose, foster an environment for skeptics to speak up, and follow the money — the risks of fool’s gold can be mitigated and the real promise of blockchain innovation can be achieved.”
However, the days of Hsu’s tenure as head of the OCC appear to be numbered, with the Biden administration reportedly moving to nominate law professor Saule Omarova to lead the institution.
If nominated, analysts believe Omarova will seek a tightening of regulations overseeing both the crypto and mainstream financial industries. Omarova previously described digital assets as a tool for private interests to abuse that are outside of the regulatory purview.
US Regulators Are Exploring Policy For Banks To Handle Crypto, Says FDIC Chair
“Establishing clear regulatory expectations will be paramount to give this market an opportunity to grow and mature in a responsible manner,” said Jelena McWilliams.
Jelena McWilliams, the chairperson of the Federal Deposit Insurance Corporation, or FDIC, has said the agency is working with other regulators in the United States to explore “under what circumstances banks can engage in activities involving crypto assets.”
In a speech at the Money20/20 Fintech Conference on Monday, McWilliams said the FDIC, in coordination with the Federal Reserve and the Office of the Comptroller of the Currency, is looking to provide regulatory clarity for banks handling crypto assets, including stablecoins. The chairperson said the FDIC planned to issue “a series of policy statements” in the coming months on guidance for banks.
According to McWilliams, stablecoins have many potential benefits to consumers, such as faster, cheaper and more efficient payments. However, she claimed that if “one or more were to become a dominant form of payment in the United States or globally,” there could be significant effects on that country’s financial stability with funds no longer being held in insured banks.
“In order to realize the potential benefits stablecoins have to offer, while accounting for potential risks, stablecoins should be subject to well-tailored government oversight,” said the FDIC chairperson. “That oversight should rest on the foundation that stablecoins issued from outside the banking sector are truly backed 1:1 by safe, highly liquid assets.”
McWilliams’ remarks came the same day Bloomberg reported that many U.S. regulators had agreed on the Securities and Exchange Commission leading the nation’s efforts to regulate stablecoins. The Department of the Treasury said in July it was exploring the creation of a type of banking charter for stablecoin issuers.
The seeming lack of regulatory clarity concerning digital assets in the United States has been an issue for many firms fearing legal action or other forms of governmental backlash. Some lawmakers have put forward legislation for U.S. regulators to work with participants in the crypto space to better define what’s expected of them.
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