On January 4, 2021, the Office of the Comptroller of the Currency (OCC) issued the latest in a string of interpretative letters on permissible crypto-related activities of national banks and federal savings associations (collectively referred to as OCC Banks). Acting Comptroller Brian Brooks has been a vocal advocate for cryptocurrencies and blockchain innovations during his brief tenure at the helm of the OCC.
The new Interpretive Letter 1174 (the Letter) clarifies that OCC Banks have the authority to participate in independent node verification networks (INVN) and use stablecoins to conduct payment activities and other bank-permissible functions. The Letter follows longstanding OCC precedent holding that the business of banking should evolve and adapt to technological changes as they occur. OCC Banks, as a matter of law, may validate, store, and record payments transactions by serving as a node on an INVN. The Letter also states that OCC Banks may use INVNs and related stablecoins to carry out other permissible payment activities. However, the Letter concludes with the OCC’s caution that while OCC Banks may legally participate in INVNs and use stablecoins to conduct payment activities, they must do so in a manner that is consistent with safe, sound, and fair banking practices. Risks associated with INVN-related activities include operational risks, compliance risks such as BSA/AML, and fraud. Before engaging in these activities, OCC Banks should develop and implement sound risk management practices that reflect the unique risks posed by cryptocurrency transactions. OCC Banks also must possess the technological expertise to manage these risks effectively.
The Letter may also provide the legal authority for some state-chartered banks to engage in similar crypto-related activities under their respective state’s national bank parity laws. These parity laws generally allow state-chartered banks to engage in activities permissible for a national bank even if such activities are not expressly authorized under a state’s banking code.
