On Monday, September 21, 2020, the Office of the Comptroller of the Currency (“OCC”) issued an interpretive letter on the authority of national banks and federal savings associations to hold stablecoin reserves (the “OCC Interpretive Letter”). That same day, the Securities and Exchange Commission’s Strategic Hub for Innovation and Financial Technology (“FinHub”) issued a statement on the OCC’s interpretive letter. While not an official joint statement, the federal agencies were clearly aligned as FinHub’s statement on the OCC Interpretive Letter was posted on its website before the OCC published its letter.
On Wednesday, September 16, 2020, the cryptocurrency exchange Kraken Financial became the first crypto company to obtain a bank charter. The Wyoming Division of Banking approved Kraken’s application for a special-purpose depository institution (SPDI) charter, which is a new type of bank charter that Wyoming specifically designed for crypto businesses. This makes Kraken the first de novo bank chartered in the state since 2006.
In a recent speech entitled “Reinventing the Wheel (with More Automation)”, Andrew Bailey, Governor and chief executive of the Bank of England, discussed the future of digital currencies. According to Governor Bailey, we have reached the point in the cycle of innovation in payments where it is essential that we set the standards and thus the expectations for how innovation will take effect. It should not, in his opinion, happen the other way round, with the standard setting playing catch up.
As a show of continued interest in the development of cryptoasset solutions, Senator Mike Crapo (R-ID), Chairman of the Senate Committee on Banking, Housing and Urban Affairs, recently sent a letter to Acting Comptroller of the Currency Brian Brooks. Chairman Crapo’s letter requested an update on findings of the Office of the Comptroller of the Currency (OCC) and information regarding next steps the OCC intends to take with respect to blockchain and distributed ledger technology.
Referencing the OCC’s June 4 advanced notice of proposed rulemaking on digital activities in banking, Senator Crapo inquired of Acting Comptroller Brooks:
- What activities related to cryptocurrencies or cryptoassets are financial services companies or bank customers engaged in and what are the barriers or obstacles to further adoption of crypto-related activities in the banking industry;
- How is distributed ledger technology used or potentially used in activities related to banking;
- What new payments technologies and processes should the OCC be aware of and what are the potential implications of these technologies and processes for the banking industry; and
- What new or innovative tools do financial services companies use to comply with regulations and supervisory expectations (i.e., “regtech”)?
Senator Crapo’s letter then asked Acting Comptroller Brooks to provide the Senate Banking Committee with an update on the OCC’s findings and the next steps the OCC intends to take with this technology.
Finally, Senator Crapo referenced the OCC’s recent guidance clarifying national banks’ and federal savings associations’ authority to provide cryptocurrency custody services. Senator Crapo urged the OCC to provide similar clarity for payment systems. The letter closes with the statement that the “U.S. should develop clear rules of the road that protect businesses and consumers without stifling future innovation.”
Effective August 1, 2020, Louisiana has adopted a Virtual Currency Business Act. In doing so it becomes the second state after New York to require certain operators of virtual currency businesses to obtain a virtual currency license in order to conduct business in the state.
The World Bank Group recently published a “FinTech Note” on Smart Contract Technology and Financial Inclusion in its “Finance, Competitiveness and Innovation” series. The note explores the potential of smart contracts to spur economic development and financial inclusion around the globe. The note explains the key technical and legal characteristics of smart contracts, delves into potential uses of the technology and, ultimately, raises important considerations for policymakers to weigh when implementing smart contract legislation. Below, we highlight a few of the key takeaways on the potential benefits of smart contracts and discuss how policy and legal decisions will impact the use of this technology.
On July 22, 2020, the Office of the Comptroller of the Currency (OCC) published an interpretive letter clarifying the authority of national banks to provide cryptocurrency custody services for customers. This latest guidance is just one of many recent developments coming out of the OCC focused on modernizing the regulatory framework at the national level. Since Brian Brooks took over as acting Comptroller of the Currency on May 29, 2020, the agency has announced a number of significant initiatives designed to allow national banks to capitalize on technology and innovation.
As part of its ongoing effort to supervise broker-dealers conducting transactions in digital assets, FINRA recently issued Notice 20-23. The Notice encourages FINRA members to continue to keep FINRA updated on a firm’s activities relating to digital assets that have not been previously disclosed.
As we previously reported, for over a year the New York Attorney General has been seeking to enforce an investigative subpoena under New York’s expansive Martin Act against cryptocurrency exchange Bitfinex and its affiliated companies that issue the Tether stablecoin. Bitfinex and its affiliates have raised a number of procedural challenges to the NYAG’s authority to conduct its investigation. In a case addressing important issues about the scope of the NYAG’s investigative authority over cryptocurrency businesses, a New York appellate court on July 9, 2020, rejected Bitfinex’s challenges and authorized the NYAG investigation to proceed.
On June 30, 2020, the full Senate Committee on Banking, Housing, and Urban Affairs held a virtual hearing entitled “The Digitization of Money and Payments.” The hearing focused on stablecoins and the prospects for a US central bank digital currency, or CBDC.