situation: Since clarifying the legal permissibility of certain cryptocurrency activities in 2020 and early 2021, federal banking agencies have begun to increase regulatory oversight of such activities and warn banks about the risks to which they apply. , imposes procedural checks at the start and emphasizes the importance of getting involved. those activities in a safe and sound manner.
result: On January 3, 2023, the Federal Reserve Board, the Federal Deposit Insurance Corporation (“FDIC”), and the Office of the Comptroller of the Currency (“OCC”) announced that certain crypto-related activities are now safe and sound to be carried out in They further noted the importance of preventing risks associated with the crypto sector from migrating into the banking system.
Future prospects: While crypto-related activities addressed in previous OCC interpretive letters may still be legally permissible for banks, some of these activities are “inconsistent with safe and sound banking practices.” The agency’s view of “very likely” still narrows the road. For banks looking to get involved with them. It is unclear whether government agencies will issue further guidance or direction to banks that are engaged in or are considering engaging in such activities.
In recent years, certain banks have shown interest in, or been involved in, crypto-related activities, or have provided banking services to crypto companies. Some crypto firms require or receive banking licenses. OCC will issue a number of Interpretation Letters in 2020 and early 2021 stating that national banks will provide cryptocurrency custody services, hold stablecoins, participate in distributed ledgers as nodes, and use stablecoins. acknowledged that it is legally permissible. The OCC has also approved the conversion or conditional charter of several banks engaged in crypto-related activities.
Since then, however, OCC and other banking institutions have taken a more conservative approach. For example, in subsequent interpretive letters, the OCC emphasized the fact that all banking activities, including crypto-related activities, must be conducted in a safe and sound manner, requiring a supervisory “no objection” before engaging. I instructed the bank to ask for In any activity related to crypto assets. Over the course of 2022, the Federal Reserve and the FDIC will follow suit by issuing guidance documents that also direct banks to seek prior notice before “Feedback” above pointed out.
The Joint Statement on the Risks of Crypto-Assets to Banking Organizations (the “Statement”) is the clearest and clearest expression of the agency’s policy approach to crypto-related activities. Consistent with past guidance and in response to market developments in 2022, the agency’s statement identifies a number of risks associated with these activities, including fraud, execution risks, and immature risk management and governance practices. . The authorities therefore point to the importance of preventing risks associated with the crypto sector that cannot be mitigated or controlled from entering the banking system.
This statement goes beyond past guidance in expressing the agency’s current views on safety and health.
Based on the Institution’s current understanding and past experience, the Institution will ensure that the issuance or holding of any primary crypto-assets is issued, stored, or transferred in an open, public, and/or decentralized network or similar system. We believe that there is a high possibility that Contrary to safe and sound banking practices.
This conclusion applies to some activities previously identified as legally permitted by the OCC and other cryptographic activities that the OCC (or other banking institutions) have not yet publicly commented on. can read for The agency also said that “business models that are focused on crypto-related activities or have concentrated exposure to the crypto sector have serious safety and sound concerns.” Notwithstanding the disclaimer that neither prohibits nor discourages banks from providing banking services to any particular class or type of It raises questions as to whether there is a viable avenue for providing Affiliated companies other than in a limited way.
These comprehensive safety and soundness declarations create high hurdles for banks seeking to engage in these activities. Rather than answer, they raise several questions: (1) What does “safe and sound” mean in the context of cryptocurrency activities, including traditional banking activities such as custody, payments and deposits? (2) Who is responsible for defining it? Banks, their regulators, or both? (4) What about banks that provide traditional banking services to cryptocurrency companies? can only be speculated, and banks are likely to be discouraged from pursuing cryptocurrency activity.
Two key points
- The Federal Reserve, FDIC, and OCC have stated that issuing or holding cryptoassets “is very likely to be inconsistent with safe and sound banking practices,” and that “businesses that are The model has serious safety and integrity concerns.” There is a concentration of asset-related activity or exposure to the crypto sector.”
- Banks need to be cautious about whether and how they conduct cryptocurrency activities or serve cryptocurrency companies and should be prepared for supervisory criticism.