US Banking Regulator Gives Cryptocurrency Activities the Green Light

The federal Office of the Comptroller of the Currency (OCC) has recently adopted a more permissive stance towards banks engaging in cryptocurrency activities. As stated by Acting Comptroller of the Currency Rodney E. Hood, "I will continue to work diligently to ensure regulations are effective and not excessive, while maintaining a strong federal banking system." On March 7, the OCC formalized its shift in approach with the release of Interpretive Letter 1183, which rescinded the supervisory non-objection process for banks seeking to engage in cryptocurrency activities. This move removed significant bureaucratic hurdles, allowing banks to participate in cryptocurrency activities with greater ease. The OCC further reaffirmed its prior guidance permitting banks to engage in various cryptocurrency activities. In May, the OCC issued Interpretive Letter 1184, which confirmed that banks can engage in specific cryptocurrency activities and addressed the role of third-party service providers, such as fintech companies, in these activities. Key points from the recent interpretive letters include the OCC's shift away from a cautious approach and its confidence in banks' ability to manage cryptocurrency-related risks. The letters also permit third-party service operators to provide cryptocurrency custody services and give banks the freedom to explore cryptocurrency opportunities without needing the OCC's prior approval. Previously, banks were required to obtain the OCC's tacit approval before engaging in cryptocurrency activities, but this supervisory non-objection process has been eliminated. The OCC has reaffirmed that certain cryptocurrency activities are permissible for banks and may support third-party service providers participating in these activities. The elimination of the supervisory non-objection process removes a significant regulatory barrier, but banks must still manage risks associated with cryptocurrency activities effectively. The OCC will review these activities as part of its regular supervisory process, expecting banks to ensure safe, sound, and fair practices. By removing the supervisory non-objection barrier, the OCC has placed greater responsibility on banks to implement comprehensive risk management frameworks, which may make it easier for them to integrate cryptocurrency products and services into their offerings. However, the OCC will likely expect banks to implement strong controls to manage risks associated with these activities, and staying up to date on the regulatory landscape surrounding cryptocurrency activities is crucial for banks engaged in them.