On November 23, 2021, the Office of the Comptroller of the Currency (OCC) published Interpretative Letter No. 11791 (the Letter) clarifying the authority of national banks and federal savings associations (Banks) to engage in certain cryptocurrency, distributed ledger, and stablecoin activities. The Letter also addresses the nature of the interaction between state law and the National Bank Act for purposes of OCC oversight of trust and fiduciary activities of national banks, including national trust banks. The Letter reflects the intent of Acting Comptroller Michael J. Hsu to reset expectations regarding the expansion of Bank activities related to cryptocurrency. Concurrently, the OCC, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (the Agencies) released a joint statement alerting the industry of their intent to provide additional guidance in the coming months concerning certain activities related to cryptoassets conducted by banking organizations. The guidance is expected to address topics such as legal permissibility, expectations for safety and soundness, consumer protection, application of capital and liquidity standards, and compliance with existing laws related to such activities.
As presaged by Acting Comptroller Hsu’s earlier statements that cryptocurrency precedents issued under the prior Comptroller were under review, the Letter attempts to constrain without overturning OCC Interpretive Letters 1170 (addressing whether Banks may provide cryptocurrency custody services),2 1172 (addressing whether Banks may hold deposits backing stablecoins),3 and 1174 (analyzing whether Banks may act as nodes on a distributed ledger to verify payments or engage in certain other stablecoin activities to facilitate payment transactions).4 Although the Letter does not rescind these interpretative letters, it indicates that before exercising any of the authorities articulated in those letters, a Bank will need to obtain specific approval tied to the OCC’s assessment of the Bank’s ability to engage in the activity in a safe and sound manner. For this purpose, a Bank must notify its supervisory office of its intent to engage in the activities and obtain a written nonobjection from the supervisory office.5 Banks making such filings should expect rigorous, and likely extended, review.
The OCC’s assessment of safety and soundness in connection with activities involving cryptocurrency, distributed ledger, and stablecoin will focus on the Bank’s risk assessment and risk management systems and its controls to address identified risks. Banks engaging in such activities are expected to address, among other things, operational risks (including hacking, fraud, and third-party risk management), liquidity risks, strategic risks and compliance risks (including but not limited to compliance with the Bank Secrecy Act, anti-money-laundering requirements, sanctions requirements, commodities laws, securities laws, and consumer protection laws). The Letter specifies that “consistent with longstanding OCC precedent, a proposed activity cannot be part of the ‘business of banking’ if the bank lacks the capacity to conduct the activity in a safe and sound manner.” Once the supervisory nonobjection is received, the OCC will oversee these activities as part of OCC’s ordinary supervisory processes.
The Letter specifically highlights that there may be different legal and compliance obligations for stablecoin activities depending on how the particular stablecoin is structured, noting that “certain stablecoins may be securities.” Given the legal authority for Banks to engage in transactions involving digital assets that are securities, and the applicable compliance obligations, differ substantially from those involving nonsecurities tokens, the Letter creates significant questions as to what level of comfort the OCC will require before allowing a Bank to transact in digital assets whose status under the federal securities laws may be unresolved.
Finally, the Letter attempts to ring-fence, without rescission, the scope of OCC Interpretive Letter 1176,6 which dealt with OCC’s authority under the National Bank Act to charter, or approve the conversion to, a national bank that limits its operations to those of a trust company and certain related activities. In particular, the Letter indicates that Interpretive Letter 1176 will be applied only in connection with chartering decisions and will not govern the question whether activities that are considered “trust or fiduciary” under state law will be deemed to be trust or fiduciary activities under federal law. If a national bank conducts an activity in a nonfiduciary capacity (regardless of its characterization under state law), the Part 97 fiduciary standards will not apply, and activities currently conducted under Part 9 fiduciary powers remain unaffected. Overall, the OCC asserts that whether an activity that is “trust or fiduciary” under state law constitutes a “trust or fiduciary” activity for purposes of federal law is a matter of OCC discretion.
The publication of the Letter was accompanied by the release of an interagency joint statement8 issued by the Agencies on the same day that (a) summarizes the work undertaken during policy sprints conducted by the Agencies to analyze various issues regarding cryptoassets and (b) provides a roadmap of future planned work related to cryptoassets. According to this joint statement, in 2022 the Agencies will provide greater clarity on the permissibility of certain activities related to cryptoassets9 and on the Agencies’ expectations for safety and soundness consumer protection, application of capital and liquidity standards, and compliance with existing laws with respect to such activities.
In combination, these releases indicate that Banks will face significantly heightened scrutiny when participating in the digital asset economy.
1 OCC Interp. Ltr. 1179 (Nov. 18, 2021), available at https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2021/int1179.pdf.
2 OCC Interp. Ltr. 1170 (July 22, 2020), available at https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2020/int1170.pdf.
3 OCC Interpretive Letter 1172 (Sept. 21, 2020), available at https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2020/int1172.pdf.
4 OCC Interp. Ltr. 1174 (Jan. 4, 2021), available at https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-2a.pdf.
5 Nonobjection letters will not be required from banks already authorized to be engaged in cryptocurrency, distributed ledger, or stablecoin activities, but the OCC will closely examine the authorized activities of those entities to ensure that they are conducted in a safe and sound manner.
6 OCC Interp. Ltr. 1176 (Jan. 11, 2021), available at https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2021/int1176.pdf.
7 12 C.F.R. Part 9.
8 Joint Statement on Crypto-Asset Policy Sprint Initiative and Next Steps (November 23, 2021), available at https://www.occ.gov/news-issuances/news-releases/2021/nr-ia-2021-120a.pdf.
9 Subject activities include cryptoasset safekeeping and traditional custody services, ancillary custody services, facilitation of customer purchases and sales of cryptoassets, loans collateralized by cryptoassets, issuance and distribution of stablecoins, and activities involving the holding of cryptoassets on balance sheet.
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