Trade groups clap back at Warren’s call to repeal crypto guidance
Withdrawing guidance that allows banks to engage in cryptocurrency-related activities will not address the risks presented by non-bank crypto firms and will not promote a safer marketplace for consumers and investors, two trade groups wrote last week in a letter to the office of the controller. of the Currency (OCC) Acting Chief, Michael Hsu.
Friday’s letter from the Bank Policy Institute (BPI) and the American Bankers Association (ABA) comes about two weeks after four senators, led by Elizabeth Warren, D-MA, asked that the OCC rescind three interpretive letters issued by Hsu’s predecessor and a piece in November’s joint guidance the senators said “may have exposed the banking system to unnecessary risk” given the “turmoil” in the crypto market.
However, the ABA and BPI disagreed with Warren, arguing “the latest events in the crypto market were completely unrelated to the banks’ involvement in the traditional banking activities described in the OCC Interpretive Letters.” Their termination, the groups added, “would not improve the protection of bank investors, consumers or the financial system in connection with cryptocurrency activities.”
Furthermore, tthe public and the financial system benefit from the banks’ involvement in crypto-related activities because the banks are “subject to comprehensive and robust risk management, oversight and investigation processes, and have significant experience in incorporating new technology into banking.” said groups.
In Interpretive Letters 1170, 1172 and 1174, then-Acting Comptroller Brian Brooks determined that banks were authorized to engage in certain crypto-related activities, including provide cryptocurrency custody service for customers, hold deposits that serve as reserves for certain stablecoins, and operate independent node verification networks and stablecoins for payment activities.
A month after taking the OCC’s top post last year, Hsu said the OCC would review the Brooks-era letters, and in November published Interpretive Letter 1179, confirming that it was “legally permitted for a bank to engage in [crypto activities]provided that the bank can demonstrate to the satisfaction of the supervisory office that it has controls in place to carry out the activity in a safe and sound manner.”
Warren’s concerns follow this year’s “crypto winter,” a period of market cooling highlighted by the bankruptcies of crypto lender Celsius and brokerage Voyager Digital over “extreme market conditions” that resulted in steep falls in the price of Bitcoin and other cryptocurrencies.
However, the ABA and BPI pointed out that much of this year’s crypto tumult stemmed from trading — an activity that the Interpretation Letters do not allow. Furthermore, this year’s meltdown was not the result of trading involving any OCC-regulated banks, the groups said.
Warren this month wrote that the interpretive letters were “problematic,” adding that she and her fellow senators were “concerned that the OCC has failed to address the shortcomings of the previous interpretive letters and the risks associated with crypto-related banking activities, which have become more serious in recent the months.”
The risks highlighted in Warren’s letter should be addressed through the regulation of non-bank crypto firms and products “which are currently largely unregulated,” the ABA and BPI argued. Prohibits well-regulated banks from engaging in crypto activities would just leave consumers looking to unregulated or lightly regulated entities for those services, the groups said.
They concluded the letter by urging the OCC and partner regulators to follow through on a promise of more guidance they made in November.
“Failure to provide clarity regarding the expectations of all banks engaging in crypto activities hinders banks’ ability to engage in responsible innovation in this space, thereby requiring consumers to look exclusively to unregulated or lightly regulated non-bank financial service providers and limited, uninsured banking institutions for digital asset products and services, rather than banks,” the ABA and BPI warned.
Enthusiasm for the cryptosphere is palpable among banks that have stepped into the space. Wells Fargo, in a report this month, called digital assets “a transformative innovation on par with the internet, cars and electricity.” The bank started offering crypto investment services in May 2021.
“They are likely to be the building blocks of a new large digital network that moves money and assets, and that network is open for anyone in the world to use,” the bank said. “Traditional finance is beginning to embrace open networks, and we expect the use of digital assets to continue to accelerate over the coming years.”
Several other major US-based banks entered the crypto world in 2020 and 2021. JPMorgan Chase began offering cash management services for cryptocurrency in May 2020, and BNY Mellon began holding, transferring and issuing cryptocurrencies on behalf of its asset management clients in February 2021.
Citi and State Street both launched digital asset units in June 2021, to help clients invest in crypto, stable coins, non-operable tokens and central bank digital currencies.
