The OCC's Crypto Custody Letter Was Years in the Making

The Office of the Comptroller of the Currency has been evaluating the cryptocurrency space for years, well before it publicly announced banks could provide services in the field last month.

AccessTimeIconAug 18, 2020 at 3:40 p.m. UTC
Updated Sep 14, 2021 at 9:45 a.m. UTC

A federal banking regulator’s decision to let banks provide crypto custody services may have seemed out of the blue, but the agency has been looking at cryptocurrencies for years.

The Office of the Comptroller of the Currency (OCC) announced last month that federally regulated banks could provide services to crypto startups in addition to custody. It turns out the OCC was already leaning toward the move before Acting Comptroller Brian Brooks took the top job at the agency.

Indeed, the OCC has been examining the cryptocurrency space since at least 2018 and likely longer, said Jonathan Gould, senior deputy comptroller and chief counsel. He told CoinDesk that the very act of writing an interpretive letter typically takes months.

“Before we actually put pen to paper that process can sometimes take a while,” he said. 

The OCC’s interpretative letter last month opened the door for banks to provide services to crypto companies in addition to custody services for cryptocurrencies directly, but it’s unlikely that banks will immediately start providing either service. 

Rather, these letters are supposed to help banks that are also interested in crypto determine whether it makes sense for them to begin getting involved in the space, Gould said. 

Banks still need to ensure they have proper risk management practices and otherwise ensure they are prepared legally to offer these services before they can actually do so.

Iterative process

The process of creating an interpretive letter typically begins when a bank makes a request, or the OCC sees a number of similar requests from different institutions. 

The actual act of drafting interpretive letters can take weeks or months, Gould said.

“A lot of times we just provide informal advice, meaning advice about what we think is okay, and when we do [we do] so without putting anything in writing,” he said. “But sometimes we put things into these interpretive letter forms so again it's a function of kind of the nature of the issue.”

The OCC looks at how many banks are asking about a specific issue or whether the regulatory agency itself thinks there might be a commonly held question, with these factors determining whether there will be an informal response or a formal letter.

“The kind of process to actually write an interpretive letter like this one, that doesn't necessarily take a huge amount of time,” he said. “But kind of thinking through the legal and other issues associated with an issue that can take a lot longer depending upon the complexity of the issue.”

The letter is just the beginning of a longer process. The OCC will interact with banks on their next steps if they do decide to pursue crypto services.

“There are a whole host of legal, regulatory and supervisory expectations that we have,” he said. “Especially with new activities that involve kind of iterative and interactive dialogue with the OCC supervisors, about how XYZ activity can be done in a safe and sound fashion, whatever risks are associated when activity can be appropriately kind of managed and so forth.”

The OCC has published more than 1,100 letters it believes are precedential or otherwise of interest to the general public.

Longer term

Gould did not say how long the OCC had been looking at last month’s interpretive letter on crypto services specifically, but reiterated that it could take the agency weeks or months to draft a 10-page letter. 

The OCC has been considering the legal and supervisory questions around crypto for years, he said, prior to Brooks joining the agency from his previous role at Coinbase. But Brooks has been able to bring specific knowledge about the crypto space to the agency.

“It is certainly the case, however, that because we have an Acting Comptroller who is exceptionally knowledgeable about these areas that has been hugely beneficial in terms of the agency's thinking and understanding,” Gould said.

Banks that are now interested in branching out into crypto should reach out to their local OCC supervisors if they have additional questions, and Gould said he hopes institutions that are looking at crypto reach out sooner than later.

“This is and will continue to be a learning process for us from a supervisory perspective and so we really need that engagement and welcome it on our end,” Gould said.


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