The Office of the Comptroller of the Currency (OCC) is turning out to be the greatest supporter of the US cryptocurrency industry.
Yesterday, the banking regulator issued a letter that greenlighted national banks and federal savings associations to hold “reserves” on behalf of stablecoin issuers. The stablecoins in the discussion are fiat-collateralized, i.e., backed by the US dollar or fiat currency of any other nation.
US Banks Allowed To Hold Reserve Funds For Stablecoin Issuers
On Monday, the OCC published an ‘interpretive letter’ directing ‘federally chartered’ financial institutions in the United States to hold reserve funds for stablecoin issuers.
…a national bank may hold such stablecoin “reserves” as a service to bank customers…
The above will apply to only the stablecoin issuer that ‘has sufficient assets backing the stablecoin in situations where there is a hosted wallet’. Also, stablecoins need to be “backed on a 1:1 basis by a single fiat currency where the bank verifies at least daily that reserve account balances are always equal to or greater than the number of the issuer’s outstanding stablecoins.”
Commenting on the development, Brian P. Brooks, Acting Comptroller of the Currency said:
National banks and federal savings associations currently engage in stablecoin-related activities involving billions of dollars each day. This opinion provides greater regulatory certainty for banks within the federal banking system to provide those client services in a safe and sound manner.
US SEC Adds To The OCC’s Stablecoin’ Interpretation’
Soon after the OCC issued its letter of stablecoin reserve holding guidance for national banks and federal saving associations, the SEC jumped in to add its opinion as well. A staff statement from The Securities and Exchange Commission Strategic Hub for Innovation and Financial Technology Staff (FinHub Staff)impressed more on the ‘security’ aspect of crypto assets.
Whether a particular digital asset, including one labeled a stablecoin, is a security under the federal securities laws is inherently a facts and circumstances determination. This determination requires a careful analysis of the nature of the instrument, including the rights it purports to convey, and how it is offered and sold.
The message is clear for stablecoin and crypto token issuers in general. ‘Market participants,’ as the SEC mentioned them collectively in the statement, should work within the confines of the securities laws. And refrain from engaging in activities that attract punitive federal action.
…market participants may structure and sell a digital asset in such a way that it does not constitute a security and implicate the registration, reporting, and other requirements of the federal securities laws.
The Fin Hub staff also admitted that a certain cryptocurrency or digital asset may not necessarily fall within the regulatory framework that the SEC has defined. It has encouraged crypto token producers to work in unison with the SEC so that the structuring, marketing, and functioning of digital assets comply with the federal securities laws.
The Staff stands ready to engage with market participants to assist them and to consider providing, if appropriate, a “no-action” position regarding whether activities with respect to a specific digital asset may invoke the application of the federal securities laws.
Circle CEO Welcomes OCC’s Letter
Jeremy Allaire, the CEO of the USDC stablecoin issuing company Circle, expressed his appreciation at the OCC’s guidance letter. According to Mr. Allaire, it recognizes the efforts of his company to revolutionize the web-based usage of ‘digital dollars’:
As an issuer of USD Coin (USDC), the guidance validates the approach we have taken in building a resilient, powerful and open standard for the use of digital dollars on the internet.
He added to his statement by saying that the OCC guidance will empower more stablecoin-based businesses and firms to continue building on this aspect of cryptocurrency technology while remaining compliant with federal laws.
With this clarity from the US Treasury Department around the standards for banks to hold reserves on behalf of stablecoin issuers, businesses of all sizes, fintech firms and banks can have more confidence in building on this innovation, while also ensuring that the guardrails and risk management expected from the US banking system can be applied to this new age of internet money.
Not The First Crypto-Friendly Gesture From The OCC
Earlier last month, Brooks, who functioned as Coinbase’s former Chief Legal Officer, said that financial payments need to happen ‘virtually instantaneously.’ He added to the sentiment by stating that ‘the crypto phenomenon cannot be ignored.’
As reported by CryptoPotato, the Acting Comptroller of the Currency, in an interview with CNN’s Julia Chatterley, mentioned that a blockchain and crypto-friendly ‘payments charter’ needs to be introduced. And that his job as the Comptroller of the Currency is to identify innovation that can solve the inefficiencies that currently plague payments.
In July this year, Mr. Brooks allowed banks regulated by the Federal Reserve to offer crypto custody services.