US regulator that oversees banks like JPMorgan wants to curb how they engage with crypto

The US Office of the Comptroller of the Currency (OCC), recently issued Interpretive Letter 1179 that revises previously released guidelines for banks engaging in certain cryptocurrency related activities.

Previous interpretive letters, issued by the OCC in 2020 and 2021, which opened up US banks to crypto, thus received an additional clarification that imposes new supervision.

By issuing the letter, the federal bank regulator laid down that higher risk management standards must be met by banks prior to receiving a green light from the supervisors.

Interpretive Letter 1179

In a bid to control the crypto industry’s entry into the US banking system, Interpretive Letter 1179 notes that “a bank should notify its supervisory office, in writing, of its intention to engage in any of the activities addressed in the interpretive letters.”

It also specifically clarifies that “the bank should not engage in the activities until it receives written notification of the supervisory office’s non-objection,” which may be granted after evaluating “the adequacy of the bank’s risk management systems and controls.”

According to the OCC, this will help determine that the US banks engaging in the proposed activities are doing so “in a safe and sound manner.”

Bank permissible activities

By issuing the letter, Acting Comptroller of the Currency, Michael Hsu, made it clear that US banks are obliged to receive permission from the regulator before engaging in any of the activities permitted in the previous Interpretive Letters 1170, 1172, and 1174.

OCC Interpretive Letter 1170 permitted banks to provide cryptocurrency custody services, while OCC Interpretive Letter 1172 allowed banks to hold US dollar deposits serving as reserves backing stablecoins.

Finally, OCC Interpretive Letter 1174 allowed banks to operate nodes in blockchain networks, and to use stablecoins to facilitate payment transactions.

“This letter also clarifies OCC Interpretive Letter 1176, which addressed the OCC’s authority to charter, or approve the conversion to, a national bank that limits its operations to those of a trust company and activities related thereto,” added the letter reiterating “that the OCC retains discretion in determining whether an activity is conducted in a fiduciary capacity for purposes of federal law.

The new policy accompanied the “Joint Statement on Crypto-Asset Policy Sprint Initiative and Next Steps,” issued by the Federal Reserve (Fed), the Federal Deposit Insurance Corporation (FDIC) and the OCC.

“Throughout 2022, the agencies plan to provide greater clarity on whether certain activities related to crypto-assets conducted by banking organizations are legally permissible,” read the statement, outlining what will be on the regulatory agenda in the following year.