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2020 has already seen its share of exciting events when it comes to how banks meet the crypto asset space. But yesterday, regulators in the US dropped a bombshell with perhaps the most important news in the history of banking and crypto assets to date – one that could very well open the door to a whole new frontier in financial services.
What is the significance of the OCC’s position on cryptoassets?
U the letter she published to an unnamed national bank on July 22, 2020. The US Department of the Treasury’s Office of the Comptroller of the Currency (OCC) offered its opinion that the banks it supervises can provide crypto-asset custody services to their customers. According to the OCC, holding cryptoasset users’ private keys on their behalf mimics other services that banks already provide, such as physically storing money and valuables in safe deposit boxes.
The letter also clarifies that US national banks can provide banking services to crypto-asset businesses, as long as those businesses are legitimate.
This clarification is vital to give confidence to US banks as they consider offering crypto-related services, or in offering services to crypto-asset companies, and opens the door to crypto-assets being more thoroughly integrated into the US financial sector.
Is the US playing catch-up banking for cryptocurrencies?
Recent news has shown that financial institutions outside the US are already diving into the crypto asset space. This week the Singapore-based innovation division of Standard Chartered Bank announced that it will offer institutional solutions for keeping cryptocurrencies, while the Canadian fintech company Wealthsimple launched bitcoin and ether trading services for its clients. U.S. banks that want to remain globally competitive and pursue innovation and growth opportunities by offering these types of crypto-asset services, or by offering services to crypto-asset businesses, can now take comfort in having their regulator’s permission to do so.
Advances in cryptocurrency acceptance are evolving
As huge as it is, this news shouldn’t come as a surprise. Since taking over as acting head of the OCC at the beginning of this year, Brian Brookswho previously served as chief legal officer at U.S. crypto asset exchange Coinbase, steered the agency toward a progressive position on crypto—one that promotes technological innovation in financial services as key to ensuring the competitiveness of the U.S. financial services industry.
In line with that view, yesterday’s letter from the OCC emphasized that, “as financial markets become increasingly technological, there will likely be an increasing need for banks and other service providers to take advantage of new technology and innovative ways to provide traditional services on behalf of clients. By providing such services, banks can continue to fulfill the financial intermediation function they had in the past in providing payment, credit and deposit services.”
What does the new OCC stance on cryptocurrencies mean for US banks?
Importantly, the OCC Custody Letter makes it clear that banks offering crypto-asset custody solutions must accept certain responsibilities. It reminds US banks that they always have an obligation to ensure compliance with regulations, such as Anti-Money Laundering and Anti-Terrorist Financing (AML/CFT) requirements.
According to the OCC, any bank that wishes to offer crypto-asset custody services, “an audit of compliance with anti-money laundering rules should be included. Banks should also have an effective information security infrastructure and controls in place to mitigate hacking, theft and fraud. Banks should also be aware that different cryptocurrencies may have different technical characteristics and therefore may require risk management procedures specific to that particular currency.”
If your bank is considering offering crypto-asset custody services or providing crypto-asset banking services, it must equip itself with a risk management framework to comply with AML/CFT requirements. This includes having appropriate policies and procedures in place, as well as implementing technology solutions that can ensure your bank can identify potential financial crime risks associated with cryptoassets, such as those related to money laundering, sanctionsand cases of fraud, such as the recent one Twitter hack.
in the Elliptical, enabling financial institutions get to know the world of cryptocurrencies confident equipping them with solutions to identify these risks is at the heart of what we do. Our enterprise level blockchain tracking solutions enable financial institutions to comply with AML/CFT requirements when handling more than 100 cryptoassets.
Contact us today to learn more about how we can help you meet your risk management and compliance obligations. And don’t forget to check out our on-demand webinar, “What your bank wanted to know about cryptocurrency but forgot to ask,” for more information on these exciting developments in financial innovation.
Compliance with Financial Services Regulations
