The OCC’s new Interpretive Letter 1183 rescinds Interpretive Letter 1179 (November 18, 2021), which had required banks to obtain prior supervisory non-objection before engaging in crypto activities.
Under the first Trump administration, the OCC issued several interpretive letters regarding national bank involvement with crypto-asset activities:
In late 2021, the OCC released Interpretive Letter 1179, which required any bank considering engaging in the crypto asset activities identified in the three prior letters to notify its supervisory office, in writing, of its intention to engage in those activities. The letter stated that a nationally chartered bank should not engage in the activities until it receives written notification that the supervisory office did not object to the activity. Letter 1179 had the practical effect of discouraging banks from participating in crypto-asset activities.
The Federal Deposit Insurance Corporation followed suit with a similar letter directed to state-chartered banks that are not Federal Reserve members on April 7, 2022. The Board of Governors of the Federal Reserve System issued a similar letter to state-chartered member banks on August 16. In January 2023, all three federal bank regulators issued a joint statement outlining their significant concerns with crypto asset activities.
Meanwhile, the Securities and Exchange Commission’s Staff Accounting Bulletin (SAB) 121 mandated that entities acting as crypto custodians should record such assets as liabilities on their balance sheets, which would trigger additional capital requirements that made custody services commercially infeasible for many banks.
Due to increased scrutiny from bank regulators and unfavorable SEC accounting guidance—notwithstanding the OCC’s clarifying interpretive letters issued at the end of the last administration—banks have largely stayed out of directly offering crypto-asset services to their retail customers.
Within the first month of the new administration, the SEC issued SAB 122, rescinding the prior accounting guidance in SAB 121. In the background, the FDIC is now litigating claims alleging that the agency failed to publicly disclose (in response to a Freedom of Information Act request) pause letters it sent to banks instructing them to halt their crypto asset activities in 2022-2023. Meanwhile, Congress has held multiple hearings examining bank regulators’ efforts to discourage banks from engaging in crypto asset activities.
Now, with IL 1183, the OCC is rescinding its own prior guidance requiring banks to seek a green light with their supervisory office. IL 1183 states:
“Since the issuance of Interpretive Letter 1179, OCC staff have continued to develop knowledge and expertise regarding crypto-asset activities. Based on this supervisory experience, the OCC has determined that Interpretive Letter 1179 is no longer necessary. This rescission is intended to reduce burden, encourage responsible innovation, and enhance transparency. The rescission will also ensure that bank activities will be treated consistently, regardless of the underlying technology.”
OCC supervisory staff will undoubtedly continue to scrutinize the way each bank manages its expansion into crypto asset services. For instance, existing OCC and interagency guidance discusses in detail the agency’s expectations for banks to manage risk associated with new products or associated with third-party service providers.
The rescissions of IL 1179 and SAB 121 mark the removal of a significant point of friction preventing banks from engaging in crypto asset activities. We anticipate banks might proceed cautiously in entering the arena, potentially via closely supervised partnerships with veteran crypto-asset service providers and technology firms.
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