Regulatory Boundaries for U.S. Banks Engaged in Crypto Activities

With the further growth of the crypto market value, the crypto world is attracting more and more institutions to participate in it. Although digital assets are very unstable and speculative, in order to meet the huge demand for customers to trade cryptocurrency and adopt the technology behind the cryptocurrency, the banking industry has gradually begun cryptographic activities. However, the entry of cryptocurrency into banks is still a worrying issue, so corresponding regulatory measures are also necessary.

The crypto boom “disrupts” the banking industry

The rapid development of companies that provide cryptocurrency loans and high-yield deposit accounts has disrupted the banking industry. In order to meet the crypto needs of customers and to adopt related technologies behind crypto, the banking industry has begun to embrace crypto activities. Australia’s largest bank Commonwealth Bank of Australia CEO Matt Comyn said in an interview that the biggest risk for banks in the cryptocurrency field is to be excluded. We see the risks of participation, but we believe that the risks of not participating are greater. We also don’t think the industry and technology will disappear anytime soon. So we want to understand it, provide customers with competitive products, and carry out correct risk disclosure.

Although the crypto asset market is still small compared to traditional asset classes, the time to explore and develop the crypto asset market is ripe. We see that the US banking industry, which has always been a representative of mature financial institutions, also participates. The adoption of cryptocurrency assets by financial institutions is driving the innovation of core banking products and services in the fields of custody, brokerage, trade clearing, settlement, payment, and loans. At the same time, new banking operating infrastructure is emerging, laying the foundation for the rapidly changing banking industry to resist risks and achieve growth.

Sheena Shah, chief cryptocurrency strategist at Morgan Stanley, pointed out in a report that in the context of exponential market growth, the banking industry is most likely to try to take advantage of people’s demand for stablecoin deposits. Some of the notable features of these tokens are that they provide crypto deposit interest rates and access to DeFi.

As encryption activities enter the banking industry, they have also prompted regulators to race to keep up. As the US regulator’s position on encrypted assets has become increasingly clear, more and more large banks are entering the field of encrypted assets, launching products, services, solutions and businesses aimed at attracting customers of encrypted assets.

On November 24, the U.S. Office of the Comptroller of Currency (OCC) stated that banks can engage in cryptographic business with the approval of regulatory agencies, and banks should notify regulatory agencies before conducting cryptographic business. The U.S. Office of General Verification of the Currency, abbreviated as (OCC), is also translated as the Office of the Supervision of the Currency, the Office of the Supervisor of the Currency, the Bureau of the Currency Supervision, the Comptroller of the Currency, the Office of the Currency Supervisor, and the Office of the Currency Auditor. It is the banking regulatory agency under the jurisdiction of the U.S. Department of the Treasury . Oversees the nation’s banks and thrift institutions (Thrift Institutions) and other federally licensed foreign banks with 1,200 branches in the United States, accounting for two-thirds of U.S. commercial bank assets.

Regulatory regulations tend to be clear

It is worth mentioning that after the U.S. Office of the Comptroller of Currency (OCC) stated that banks can engage in cryptographic business with regulatory approval, the OCC also issued a letter. The letter stated that it needs to be confirmed that the National Bank and the Federal Reserve Association must prove that they have adequate control measures before they can engage in certain cryptocurrency, distributed ledger, and stable currency activities.


(OCC clarifies the power of the bank to participate in certain cryptocurrency activities and the letter related to the power of OCC to authorize the National Trust Bank)

OCC Acting Administrator Michael J. Hsu said: “As many of these technologies and products have new risks, banks must be able to demonstrate that they have appropriate risk management systems and control measures to proceed safely. This will ensure that they are within the scope of federal supervision. The crypto asset activities carried out are carried out responsibly.”

In fact, not only the OCC, but related reports in the United States pointed out that senior officials of the Federal Reserve and other banking regulatory agencies are now urgently launching “competition with cryptocurrencies” in order to catch up with this rapid change and determine how to reduce it. The potential risks of an emerging market are because the history of the market is full of speculative activities with high risks and technological advances.

The U.S. banking regulator will also release more information on cryptocurrency activities in 2022. According to a statement by the U.S. banking regulator, clearer information will be provided in 2022 on which cryptocurrency activities are legally permitted by banks. The legal issues surrounding crypto asset custody, loan mortgage, stable currency issuance and other issues will be explained.

In November, the President’s Financial Affairs Working Group, including the Chairman of the Federal Reserve, the Chairman of the Securities and Exchange Commission, the Chairman of the Commodity Futures Trading Commission and the Secretary of the Treasury Janet Yellen, issued recommendations together with the FDIC and OCC, calling for the regulation of stablecoins.

In addition, the IOSCO Securities Regulatory Agency (IOSCO is a professional organization composed of securities and futures regulatory agencies in various countries and regions, and is one of the main financial regulatory international standard setting agencies) also expressed the same regulatory tone. The IOSCO securities regulator and the Bank for International Settlements recently stated in a report that stablecoins must comply with the same rules as traditional payments. 

Of course, for the banking industry, it is necessary to actively move closer to supervision. There is no unified global regulatory framework for encrypted assets, and there are differences and overlaps in the nature and application of rules in different jurisdictions. This complexity has brought severe compliance challenges to banks, and it is necessary for banks to closely monitor changes in global regulatory regulations.

Posted by:CoinYuppie,Reprinted with attribution to:
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