Brian Brooks has recently ended his term as Acting Comptroller of the Currency. A focus of his tenure had been broadening the ability of banks to engage in cryptocurrency activities and expanding the availability of federal charters to cryptocurrency businesses. His parting actions include approval of a charter conversion for a cryptocurrency bank, Anchorage Trust Company (Anchorage), and an interpretive letter clarifying the authority of national banks and federal savings associations to use independent node verification networks (INVNs) and stablecoins for payment activities. It remains to be seen whether the Office of the Comptroller of the Currency’s (OCC) crypto-friendly agenda will continue under the Biden administration.

The conditional cryptobank approval 

Prior to the OCC’s approval of a conversion to a federal charter, Anchorage was a non-depository trust company organized under South Dakota law. As a national trust bank, operating under the title of Anchorage Digital Bank, National Association, it is permitted to do business in all fifty states.

The OCC conditioned its approval on Anchorage limiting its business to trust operations and related activities. The OCC approval bars Anchorage from engaging in activities that would cause it to be a “bank” under the Bank Holding Company Act such as taking cash deposits. Anchorage must also enter into agreements with the OCC and Anchorage’s parent company, Anchor Labs, Inc. (Anchor Labs), establishing capital and liquidity requirements, obligations on the part of Anchor Labs to provide capital and liquidity support to Anchorage if and when necessary, and certain risk management expectations.

Through the Anchorage approval, Brooks achieved his stated goal of granting crypto companies a federal charter — just before stepping down as the OCC’s head.   The availability of a federal charter may be attractive to crypto companies because it allows them to avoid regulation by all fifty states.  While Anchorage is the first federally chartered crypto bank, it may not remain the only one for long as fellow start-ups BitPay and Paxos have also applied for federal charters through the OCC.

The interpretive letter

The interpretive letter clarifies that banks under the OCC’s supervision have the authority to utilize INVNs and stablecoins in their authorized payment activities. 

The OCC and courts have long recognized banks' authority to conduct payment activities using new and evolving technologies. For example, the letter cites a 2002 OCC rule codifying the authority of national banks to offer electronically stored value (ESV) systems which noted that “the creation, sale, and redemption of [ESV] in exchange for dollars is part of the business of banking because it is the electronic equivalent of issuing circulating notes or other paper-based payment devices like travelers checks.” 

The OCC applied a similar analysis in the interpretive letter to conclude that banks may use INVNs and related stablecoins to conduct authorized payment activities. In the OCC’s view, stablecoins, ESV systems, debit cards, and checks are simply different means of carrying out the same function, and the technological differences among them are immaterial so long as the underlying activity is a permissible one. Similarly, banks may serve as nodes on INVNs because it is simply a new means of transmitting payment instructions and validating payments, both of which are permissible banking activities.

The OCC stressed that banks must remember to engage in these payment activities in a manner consistent with applicable law and safe and sound banking practices. The letter cites a statement of the President's Working Group on Financial Markets, which noted that stablecoin arrangements “should have the capability to obtain and verify the identity of all transacting parties” and that they should have appropriate practices in place such as “a 1:1 reserve ratio and adequate financial resources to absorb losses and meet liquidity needs.”

Under the interpretive letter, banks must also continue to guard against potential money laundering activities and terrorist financing. The OCC recognized that banks already have significant experience with developing compliance programs to ensure compliance with the reporting and recordkeeping requirements of the Bank Secrecy Act, and to prevent the usage of their systems by bad actors to avoid the financial system or engage in other illicit activities. However, they may adapt and expand their compliance programs to address the risks associated with cryptocurrency transactions in particular.

The letter closes with a note that banks should consult with OCC supervisors prior to engaging in these payment activities, as appropriate.

Next steps

The OCC’s crypto-friendly actions under Brooks have been met with criticism from lawmakers and trade groups, including sharply worded letters from members of Congress, who wrote that they were not the OCC’s call to make unilaterally.  In a letter to then-President-Elect Joe Biden, the chair of the House Financial Services Committee requested that the new administration rescind all of the OCC’s crypto-related guidance.

Certain actions, like the granting of federal charters to crypto companies, may be more difficult to undo. However, given the new administration coming to power and Brooks’s departure, it is unclear whether the OCC will continue to push banking regulation in such a crypto-friendly direction. It will likely take a number of months after the nomination and confirmation of a new head of the OCC before it becomes clear how the agency will approach the crypto space going forward.