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Thursday, January 20, 2022

Banks Need OCC’s Approval for Some Crypto, Stablecoin Activities

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  • A supervisor office must consent before banks can jump into crypto custody or holding US dollar deposits backing stablecoins.
  • The OCC’s letter could lead banks to slow down their approach for entering the crypto and stablecoin spaces and to assess their risk processes.
  • Insider Intelligence publishes hundreds of insights, charts, and forecasts on the Banking industry. Learn more about becoming a client.

The news: The Office of the Comptroller of the Currency (OCC) published a letter informing banks that they need its permission to engage in crypto custody or holding stablecoin-backing deposits. It’s a reversal from the relatively permissive approach it adopted in 2020.

The regulator initially blessed crypto custody and stablecoin support in two letters that it issued in 2020. A January 2021 letter later greenlit payments activities.

More on this: If a bank wants to offer crypto or stablecoin services, it will need to take a two-step approach with the US federal regulator:

  • Notify its OCC supervisory office that it plans to venture into crypto or stablecoin services.
  • Wait for the office’s approval before doing business in these services while the supervisory office looks into whether the bank’s risk management and measurement are up to snuff.

The OCC has exempted banks that are already conducting these activities from obtaining approval, but is still requesting that they inform their OCC supervisory offices of what they’re doing.

The OCC is also applying the stricter process to banks that want to use distributed ledgers for verifying customers’ payments, and that want to be involved in stablecoin activities for payments facilitation.

High stakes surround the OCC’s involvement because it affects

US banks

‘ involvement in a huge asset class.

The global market value of all crypto—it includes stablecoins in the figure—stood at $2.55 trillion as of last Wednesday, the day prior to Thanksgiving in the US, per CoinMarketCap.

The site noted that stablecoins were about 76% of daily volume, at $100.13 billion.

The big takeaway: The OCC’s letter could lead banks to slow down their approach for entering the crypto and stablecoin spaces and to assess their risk processes. Banks that are already operating in those spaces will likely continue to do so, but could also take fresh looks at how they are handling risk for digital assets.

However, the directive won’t make a difference in the long run. Banks are used to working with federal regulators and the sheer size of crypto and stablecoin markets will continue to attract their attention.

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