The relationship between banks and cryptocurrency in the United States has been as complicated as the concept of “money” itself. But today’s interpretive letter from the Office of the Comptroller of the Currency (OCC) may be changing all that.
The OCC serves to establish, regulate and supervise national banks. Today’s OCC letter clarifies that national banks have the authority to provide trust bank accounts and crypto custody services to crypto companies. This OCC clarification can open doors for larger financial institutions to feel more comfortable in providing traditional bank accounts to cryptocurrency companies, as well as providing custody services for clients’ private keys.
Custody services
In its letter, the OCC recognized the difference between escrow services for fiat money versus cryptocurrency, noting that because digital currencies only exist on the blockchain or distributed ledger, there is no physical possession of the instrument. . Therefore, a bank that “holds” digital currencies on behalf of a customer will take possession of the crypto access keys to that cryptocurrency unit.
“From safe deposit boxes to virtual vaults, we must ensure that banks can meet the financial service needs of their customers today,” said Acting Comptroller of the Currency Brian P. Brooks. “This opinion clarifies that banks can continue to meet the needs of their clients.” for safeguarding their most valuable assets, which today for tens of millions of Americans includes cryptocurrencies. “
And while there are differences between fiat and cryptocurrency, the need to protect financial wealth is the same. Currently, those who own cryptocurrencies can keep their cryptocurrency in a digital wallet, with an exchange or for individuals with higher net worth, a trusted company. The OCC’s statements are incredibly helpful in providing assurances to banks that they can follow this cryptocurrency custody service line.
Industry players, including Gemini, a regulated cryptocurrency exchange, and Anchorage, a custodian of digital assets, agree that this may be good for the industry.
Today’s progressive OCC announcement validates Gemini’s long-standing stewardship approach. Gemini has created an institutional grade custody solution to address the unique challenges of digital asset storage, which is regulated by the NYDFS and serves many institutional partners. A regulated solution provides the best option for the security of clients’ encryption assets, ”said Noah Perlman, Chief Compliance Officer at Gemini.
Nathan McCauley, CEO of Anchorage, which provides digital asset custody services for institutions, said: “The OCC letter is a positive development for the entire crypto industry. Lack of regulatory clarity has been a major obstacle to increased institutional activity in crypto, and major pronouncements like this help move the needle. ”
However, McCauley cautioned: “Custody of digital assets presents more than regulatory challenges. It is highly technical work, often tailor-made, with no easy corollary to traditional finance. ”
Furthermore, although the OCC will allow national banks to guard the cryptocurrency, for the time being, the letter does not extend FDIC insurance coverage to cryptocurrency.
Bank cryptocurrency
The letter also reaffirms the OCC’s position that national banks can provide permitted banking services to any legal business, including cryptocurrency businesses, as long as they effectively manage the risks and comply with applicable law. “
Most cryptocurrency businesses and exchanges rely heavily on bank rails for customers to finance their accounts with fiat to exchange for cryptocurrencies. However, cryptocurrency companies have long struggled to find banking partners due to the “high risk” nature of cryptocurrency. In 2017 JPMorgan CEO Jamie Dimon even tagged bitcoin a “fraud,” but now JP Morgan deposits major cryptocurrency companies in banks, including Gemini and Coinbase.
Representations of the Bitcoin cryptocurrency are seen in this illustrated photo taken in Poland on … [+]
There is evidence that cryptocurrency is actually not used more frequently for money laundering or wrongful crime than fiat currency, and many banks have already implemented compliance and legal barriers for cryptocurrency banking companies. Silvergate Bank, for example, was one of the first banks to provide fiat bank accounts to major cryptocurrency companies and exchanges. Cryptocurrency companies have attempted to maintain multiple banking relationships to diversify the risk of losing an account.
In many ways, cryptocurrency is actually better at combating money laundering and illicit activity. Jonathan Levin, Co-Founder and Chief Strategy Officer of Chainalysis, a leading cryptocurrency tracking company, explains this benefit. Levin stated, “Every cryptocurrency transaction is recorded in a public ledger, making it inherently transparent. This allows us to quantify how much of all cryptocurrency activity is associated with crime … That is simply not possible with cash and other traditional forms of value transfer. “
Interestingly, the letter notes that “fiat money refers to instruments that have no intrinsic value” and that “government-issued coins, including the US dollar after the abandonment of the gold standard, are traditional fiat money.”
The OCC’s comments can help give other banks the confidence they need to provide banking and custody services to the often misunderstood cryptocurrency industry.
For more information see the OCC Interpretive Letter
.
