SEC, OCC Issue First Regulatory Clarifications for Stablecoins

The U.S. OCC has published fresh guidance, officially clarifying national banks can provide services to stablecoin issuers in the U.S.

AccessTimeIconSep 21, 2020 at 8:02 p.m. UTC
Updated Sep 14, 2021 at 9:58 a.m. UTC

The U.S. Office of the Comptroller of the Currency (OCC) has published fresh guidance, officially clarifying national banks can provide services to stablecoin issuers in the U.S.

The OCC and the Securities and Exchange Commission (SEC) published stablecoin guidance Monday, providing the first detailed national guidance on how cryptocurrencies backed by fiat currencies should be treated under law. Prior to Monday's notices, there was no federal clarity around stablecoins.

Stablecoin issuers have been using U.S.  banks for years, but in an unclear regulatory environment. Now, the OCC wants federally regulated banks to feel comfortable providing services to stablecoin issuers, it said in a press release. An accompanying interpretative letter, signed by Senior Deputy Comptroller Jonathan Gould, explained that while banks should conduct due diligence and ensure they assess the risks of banking any stablecoin issuers, stablecoins are becoming increasingly popular.

The letter specifies it refers to stablecoins backed on a one-to-one basis by fiat currencies.

“National banks and federal savings associations currently engage in stablecoin related activities involving billions of dollars each day. This opinion provides greater regulatory certainty for banks within the federal banking system to provide those client services in a safe and sound manner,” Acting Comptroller of the Currency Brian Brooks said in a statement.

Jeremy Allaire, CEO of CENTRE member Circle, told CoinDesk in March that at present, USDC issuers have to onboard with reserve banks, with each member holding an account at these banks. 

“I can’t speak on behalf of other stablecoins but at CENTRE we’ve seen really robust demand from significant banking institutions to get involved in reserve banking stablecoin clients,” he said at the time.

Banking stablecoins

The OCC detailed how banks should handle stablecoin reserves, specifically referring to stablecoins backed by currencies like the dollar. 

The OCC has taken a number of steps to integrate the crypto space with the existing financial system under Brooks, who is Coinbase’s former general counsel. In recent months, the OCC has told banks they can provide services to crypto startups and floated a national payment charter for exchanges and other fintech firms.

According to the letter, stablecoin issuers can point to the fact that regulated banks hold their reserves to convince the general public that they are safe.

The letter specifies that the OCC’s guidance only refers to stablecoins held in hosted wallets, meaning wallets controlled by a trusted third party. Unhosted wallets, which are controlled by the individual user who owns the cryptos being stored, are not included in Monday’s announcement. 

“The due diligence process should facilitate an understanding of the risks of cryptocurrency and include a review for compliance with applicable laws and regulations, including those related to the Bank Secrecy Act (BSA) and anti-money laundering,” the OCC’s interpretative letter said. 

This due diligence includes Patriot Act compliance as well.

“Stablecoin reserve accounts could be structured as either deposits of the stablecoin issuer or as deposits of the individual stablecoin holder if the requirements for pass through insurance are met,” the letter explained.

SEC response

Further, the SEC said certain stablecoins might not be securities under federal law, but advised issuers to work with the agency and legal counsel to ensure this is the case. According to the statement, the SEC is willing to publish a "no-action" letter, which would assure the recipient that the regulator would not bring an enforcement action against the company.

“Whether a particular digital asset, including a so-called "stablecoin," is a security under the federal securities laws is inherently a facts and circumstances determination. This determination requires a careful analysis of the nature of the instrument, including the rights it purports to convey, and how it is offered and sold,” the SEC said.

Monday’s statements would appear to apply to fiat-backed stablecoins only, not algorithmic ones. Basis, a stablecoin startup which raised $133 million in 2018, shut down that December after its lawyers concluded that the specific mechanism for its token would be treated as securities under U.S. law.

The SEC’s crypto czar, Valerie Sczcepanik, said as much during last year’s SXSW.

“You might be getting into the land of security” with algorithmic stablecoins, she said in March 2019.

The SEC said Monday that it recommended issuers contact FinHub, its fintech wing, to ensure projects remain in compliance.

"The Staff stands ready to engage with market participants to assist them and to consider providing, if appropriate, a 'no-action' position regarding whether activities with respect to a specific digital asset may invoke the application of the federal securities laws," the SEC said.

UPDATE (Sept. 21, 2020, 22:15 UTC): This article has been updated with the SEC's statement and to clarify examples of algorithmic stablecoins.


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