US Blockchain Businesses Push for Alternative to State-By-State Licensing

Six blockchain businesses and advocacy groups have submitted public comments to a report released by a US bank regulator earlier this year.

AccessTimeIconJun 9, 2016 at 7:38 p.m. UTC
Updated Sep 11, 2021 at 12:19 p.m. UTC

Following the publication of a report by the US Office of the Comptroller of the Currency (OCC) on FinTech innovation in March, six blockchain businesses and advocacy groups have submitted public comments that shed light on how they’re hoping to inform and influence the regulator’s future activity in the sector.

While positive about the OCC’s action to better understand the industry, the majority of the respondents used the forum to advocate for the regulator to create a national licensing regime that would ease barriers to entry for startups. Industry representatives argued that what is needed is an approach that allows startups to bypass the state-by-state licensing process that they say is discouraging domestic innovation.

Such an argument was put forth in various forms by industry participants as diverse as bitcoin exchange Coinbase, bitcoin payments app Circle, industry advocacy group Coin Center and distributed ledger startup Ripple in comments that have now been made public.

Ryan Zagone, director of regulatory relations at Ripple, wrote:

"Our regulatory regime lacks an efficient national licensing option designed for companies with national or global reach. This gap limits the ability for these companies to grow in the US. In many cases, they relocate or focus their growth in countries with more efficient licensing regimes."

Jerry Brito, executive director at Coin Center, and John Beccia, CCO of bitcoin startup Circle, built on this idea in his remarks, wherein they advocated that the OCC create a new “federal alternative” to state money transmission regulation.

"We believe a new charter at the federal level could lead to a race to the top and innovation among regulators at the federal and state level," Beccia wrote.

Elsewhere, respondents suggested the OCC set up a task force or innovation office to work more directly with the FinTech industry, so it can better understand the nuances of the specific technologies and business models that are being employed by startups.

Respondents also spoke directly to the nuances of blockchain technology and what they perceive as the difficulty the industry has had fitting into current regulatory regimes designed for more traditional payment systems.

The negative repercussions of this were perhaps most strongly voiced by Chamber of Digital Commerce president Perianne Boring, who wrote:

"The digital currency and digital asset companies involved in MSB activities are similarly being denied access to banking services without appropriate initial due diligence aimed at understanding the actual business model."

International influence

In what has become a common industry refrain, many representatives encouraged the OCC to look to the UK, Singapore and Australia as examples of jurisdictions that are more accommodating to innovative startups.

Brito, for example, asserted that the OCC should model its actions after the UK Financial Conduct Authority, which he said has had a positive impact on its domestic FinTech ecosystem by creating an inclusive tone.

"Profound criminal penalties await an innovator who ignores the states, or who wishes to hazard a liberal interpretation of when an activity is not money transmission, or who – succinctly – chooses to seek forgiveness rather than permission," Brito wrote.

Brito’s statements sought to connect such difficulties as delaying the larger benefits of new financial technologies, which he argued should be apparent in the wake of a recent incident at centralized payment network SWIFT.

The comments were echoed in a filing by Beccia, whose firm recently secured an e-money license in the UK, and who lauded the UK as an example the OCC should follow.

"In addition to encouraging innovation within its borders, the UK regulators have focused on international coordination efforts to further foster innovation and assist UK FinTech companies," Beccia wrote.

Beccia went on to position further action from the OCC as a way for the US to restore its competitiveness and "change the dynamic" for FinTech.

Firsthand exposure

Among these submissions, banking consortium R3CEV arguably emerged as an outlier as its comments were more directed at the OCC’s relationship with its clients in the incumbent financial industry.

Still, R3 managing director Charley Cooper argued the OCC should seek to work more closely with the industry, including startup firms.

He said:

"The OCC should consider various ways to actively engage with the private sector – both financial services companies and technology companies alike – to better understand and support the new technologies coming to market."

Cooper went so far as to state that the OCC should consider taking steps to work "first hand" with startups in the industry by developing an in-house understanding of the technology, while emphasizing the collaboration is needed for all market participants to alleviate concerns about new innovations.

Each respondents comments can be found in full here.


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