US Bank Regulator Approves Crypto Transactions for National Banks

The US Office of the Comptroller of the Currency has affirmed that national banks can intermediate cryptocurrency trades as riskless principals without holding the assets on their balance sheets. This interpretive letter, released on Tuesday, allows banks to act as principals in a crypto trade with one customer while simultaneously entering an offsetting trade with another, mirroring riskless principal activity in traditional markets.

The OCC's document notes that several applicants have discussed how conducting riskless principal crypto-asset transactions would benefit their proposed bank customers and business by offering additional services in a growing market.

According to the OCC, this move allows customers to transact crypto-assets through a regulated bank, offering a safer alternative to non-regulated or less regulated options. The interpretive letter emphasizes that banks must confirm the legal permissibility of any crypto activity and ensure alignment with their chartered powers.

Institutions are expected to maintain procedures for monitoring operational, compliance, and market risks. The main risk identified in these transactions is counterparty credit risk, particularly settlement risk, which banks are experienced in managing.

The guidance cites 12 U.S.C. 24, which permits national banks to conduct riskless principal transactions as part of the business of banking. The letter distinguishes between crypto assets that qualify as securities, noting that riskless principal transactions involving securities are already permissible under existing law.

The OCC's interpretive letter, a nonbinding guidance outlining the agency's view of allowable activities for national banks, was issued a day after OCC head Jonathan Gould stated that crypto firms seeking a federal bank charter should be treated the same as traditional financial institutions.

Gould remarked that the banking system has the capacity to evolve, suggesting no justification for treating digital assets differently from traditional bank custody services. This regulatory change comes amid shifting views in the federal government towards a more permissive posture regarding digital asset activity, contrasting with previous accusations of regulators pursuing Operation Choke Point 2.0 during the Biden administration, which was said to scrutinize banks and companies involved with crypto more heavily.

The OCC's decisions mark a significant transformation in the regulatory framework, potentially opening new revenue streams for banks and impacting the broader financial ecosystem.