The Federal Reserve Board, FDIC, and OCC (collectively, the “Agencies”) issued on November 23 a short Joint Statement on Crypto-Asset Policy Sprint Initiative and Next Steps (“Joint Statement”), which announced – without further concrete detail – that they had assembled a “crypto asset roadmap” in order to provide greater clarity in 2022 to banks on the permissibility of certain crypto-asset activities. Only the week before, the OCC’s Chief issued Interpretive Letter #1179, which confirmed that a national bank or federal savings association could engage in certain cryptocurrency, distributed ledger and stablecoin activities – consistent with prior OCC letters – so long as a bank shows that it has sufficient controls in place, and first obtains written notice of “non-objection” by its supervisory office. This post will discuss both publications.
There is great overlap between the bank activities referenced in the Joint Statement and Interpretive Letter #1179. The 2022 clarity promised by the “roadmap” presumably will supersede, once issued, Interpretive Letter #1179, which appears to function as a general stop-gap until the 2022 publications hopefully provide more detail regarding exactly how banks can attain compliance.
Federal banking regulators have been busy in this space. These pronouncements come closely on the heels of a Report on Stablecoins issued earlier in November by the Agencies and the U.S. President’s Working Group on Financial Markets, which delineated perceived risks associated with the increased use of stablecoins and highlighted three concerns: risks to rules governing anti-money laundering (“AML”) compliance, risks to market integrity, and general prudential risks.
A “Crypto Asset Roadmap” Promising Future Clarity
In the Joint Statement, the Agencies state that they “recognize that the merging crypto-asset sector presents potential opportunities and risks for banking organizations, their customers, and the overall financial system.” Accordingly, “it is important that [the Agencies] provide coordinated and timely clarity where appropriate to promote safety and soundness, consumer protection, and compliance with applicable laws and regulations, including [AML] and illicit finance statute and rules.” The Joint Statement therefore provides a “crypto asset roadmap” — the five bullet points set forth below — regarding topics for which the Agencies “plan to provide greater clarity [throughout 2022] on whether certain activities related to crypto-assets conducted by banking organizations are legally permissible, and expectations for safety and soundness, consumer protection, and compliance with existing laws and regulations[.]” The five “roadmap” topics are:
- Crypto-asset safekeeping and traditional custody services.
- Ancillary custody services.
- Facilitation of customer purchases and sales of crypto-assets.
- Issuance and distribution of stablecoins.
- Activities involving the holding of crypto-assets on balance sheet.
In other words: although the Joint Statement provides no concrete details, stay tuned for greater clarity throughout 2022 for banks regarding crypto-assets and related safety and soundness issues. In theory, this potential regulatory clarity sounds promising – but of course, the devil is in the details, and the final product will need to judged according to its actual utility. The Joint Statement also notes that the Agencies will evaluate bank capital and liquidity standards for crypto assets for activities involving U.S. banking organizations.
OCC Interpretive Clarification
The OCC’s Interpretive Letter #1179 refers back to three prior OCC Interpretive Letters:
- OCC Interpretive Letter 1170, issued on July 22, 2020 and addressing whether banks may provide cryptocurrency custody services;
- OCC Interpretive Letter 1172, issued on September 21, 2020 and addressing whether banks may hold dollar deposits serving as reserves backing stablecoin in certain circumstances; and
- OCC Interpretive 1174, issued on January 4, 2021 and addressing (1) whether banks may act as nodes on an independent node verification network (e., distributed ledger) to verify customer payments, and (2) whether banks may engage in certain stablecoin activities to facilitate payment transactions on a distributed ledger.
All three of the above interpretive letters found that banks could perform the activity under consideration, if certain conditions were met. Distilled, Interpretive Letter #1179 confirms that the activities described in the prior interpretive letters are “legally permissible for a bank to engage in, provided the bank can demonstrate, to the satisfaction of its supervisory office, that it has controls in place to conduct the activity in a safe and sound manner.” Importantly, a national bank or federal savings association wishing to engage in any of the activities described above must notify in writing its supervisory regulator, and should not engage in such activities until it receives written notification of the supervisor’s “non-objection.” As always, the adequacy of the bank’s risk management systems will be critical to this determination. To obtain supervisory non-objection, a bank must demonstrate in writing that it understands any relevant compliance obligations, including under the Bank Secrecy Act, federal securities laws, the Commodity Exchange Act, and consumer protection laws. Once a bank has received supervisory non-objection, the OCC will review these activities as part of its ordinary supervisor process. It is unclear how fact regulators will act – or not – on requests for non-objection before the Agencies issue the clarity promised by “road map” sometime in 2022.
Interpretive Letter #1179 provides that banks already engaged in cryptocurrency, distributed ledger, or stablecoin activities as of the date of the letter do not need to obtain supervisory non-objection, assuming that they previously notified their supervisory offices and have adequate systems and controls in place to ensure that they are operating in a safe and sound manner.