The Office of the Comptroller of the Currency (OCC), an independent bureau of the US Department of the Treasury, issued interpretive letters in 2020 and 2021 on banks’ activities in the crypto industry. The activities included providing cryptocurrency custody service for customers, holding deposits that serve as reserves for certain stablecoins, operating independent node verification networks (INVNs) and engaging in stablecoins activities that facilitated payment transactions on a distributed ledger.

In a November 2021 interpretive letter, the OCC further stated: “This letter clarifies that the activities addressed in those 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”.

Following recent events in the crypto industry, some US senators have written to the OCC requesting it withdraw its interpretive letters to the banks on cryptocurrencies. The August 10, 2022, dated letter read: “In light of recent turmoil in the crypto market, however, we are concerned that the OCC’s actions on crypto may have exposed the banking system to unnecessary risk, and ask that you withdraw existing interpretive letters that have permitted banks to engage in certain crypto-related activities.”

The letter further requested the OCC to coordinate with the Federal Reserve and the Federal Deposit Insurance Corporation to develop a comprehensive approach that adequately protects consumers and the safety and soundness of the banking system.

In a separate letter dated August 8, 2022, the American Bankers Association (ABA) responded to an executive order (EO) through the US Treasury Department requesting information and comments on the responsible development of digital assets. 

In their response, the ABA highlighted the risks posed to consumers by crypto companies not subject to consolidated federal regulation and supervision. The ABA letter read: “We are concerned that very little activity seems to have been undertaken since the EO was issued to rein in these non-bank crypto companies. At the same time, bank regulators have taken a very cautious approach, instructing banks to seek formal non-objection to any activities in the digital asset market”.

The ABA called for regulatory clarity and a level playing field for banks and non-banks to enhance innovation and competitiveness in the digital assets market. The ABA letter stated that: “Banks are subject to a comprehensive regulatory framework and consolidated supervision that enables careful implementation of digital asset activities. Backed by a culture of risk management and compliance, and subject to supervision and examination, banks are better equipped to identify any risks and remediate them in a timely manner that mitigates harm to consumers and other market participants”. 

The ABA letter concluded that “Digital assets represent a rapidly developing marketplace, and banks are actively evaluating ways to safely and responsibly compete”.

The multi-pronged approach calls for a more transparent regulatory framework, combined with a culture of risk management whilst at the same time protecting consumers in the crypto industry.