American Banks Embrace Cryptocurrency Services
In a landmark decision, American national banks have been granted the authority to engage in cryptocurrency trading on behalf of their clients. This development stems from a revised interpretive letter issued by the Office of the Comptroller of the Currency (OCC), which dismantles previous regulatory obstacles and paves the way for banks to offer comprehensive digital asset services.
Comprehensive Crypto Services Offered by Banks
According to the new OCC guidelines, federal savings associations and national banks are now permitted to provide an extensive range of cryptocurrency services. This includes not only the buying and selling of digital assets but also converting them into US dollars, facilitating settlements, maintaining customer records, and supporting asset valuations and tax reporting. Banks may either manage these services internally or in partnership with third-party providers. However, the OCC mandates that banks must implement robust internal controls and risk management strategies.
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Regulatory Shifts and Industry Impact
The recent guidance signifies a significant shift in US regulators’ attitudes toward cryptocurrency. On March 7, the OCC rescinded a rule that required banks to obtain supervisory non-objection before delving into digital currencies. Subsequently, on April 24, the Federal Reserve withdrew its 2022 policy obligating state member banks to notify authorities before engaging in crypto-related activities. According to Faryar Shirzad, Chief Policy Officer of Coinbase, this new direction provides greater clarity, largely thanks to the efforts of Acting Comptroller Rodney Hood.
Enhanced Customer Control Over Crypto Transactions
The OCC’s letter also emphasizes that banks are authorized to act upon a client’s directive. Consequently, if a customer holds cryptocurrency with their bank and decides to sell, the bank can execute the transaction directly. This empowers customers with greater control and facilitates smoother crypto transactions through established banking channels. This clarification builds upon previous OCC guidance, removing any lingering ambiguity and potentially accelerating the adoption of such services.
Currently, the cryptocurrency market capitalization stands at $3.23 trillion, underscoring the growing significance of digital currencies in the financial sector.
Third-Party Crypto Service Provider Regulations
The OCC guidance also outlines the expectations for banks engaging with third-party crypto service providers. If banks outsource activities like cryptocurrency custody or transaction facilitation, they must conduct thorough due diligence and maintain oversight. Particularly, sub-custodians are required to adhere to stringent security protocols to protect customer assets. The OCC expects banks to hold external partners to the same standards applied in other areas of banking, ensuring risk management frameworks align with existing regulations to shield customers from potential mismanagement.
Integrating Cryptocurrency into Mainstream Banking
This announcement sends a clear message that cryptocurrency is no longer a forbidden territory for mainstream banks. By granting banks greater freedom to engage without requiring prior approval, the OCC is signaling a more accepting stance towards digital asset services within the regulated financial landscape. Although it remains to be seen whether this will lead to a surge of banks entering the crypto business, the guidelines are in place, the path is open, and customers now have the option to access crypto services from the same institutions where they maintain their checking accounts.
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