State of Crypto: What’s Next for the OCC?

The OCC published a number of crypto-friendly pieces of guidance last year. The next head of this banking regulator could undo this work.

AccessTimeIconMar 23, 2021 at 1:30 p.m. UTC
Updated Sep 14, 2021 at 12:30 p.m. UTC
AccessTimeIconMar 23, 2021 at 1:30 p.m. UTCUpdated Sep 14, 2021 at 12:30 p.m. UTC
AccessTimeIconMar 23, 2021 at 1:30 p.m. UTCUpdated Sep 14, 2021 at 12:30 p.m. UTC

The Office of the Comptroller of the Currency (OCC) got involved in crypto in a big way last year under Acting Comptroller Brian Brooks. The future of this bank regulator is now up in the air. 

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Bank regulators and crypto

The narrative

The Office of the Comptroller of the Currency (OCC) is a major federal bank regulator, and the only one that has published guidance for cryptocurrency companies and banks that may be interested in interacting with cryptocurrencies. Under former Acting Comptroller Brian Brooks, who took office last summer, the OCC gave national banks permission (or at least a nod) to offer crypto custody services, conduct payments using stablecoins and work with crypto custodians. The OCC also made history by approving the first crypto company to become a national bank in the U.S.

The question is: What’s next? Brooks’ successor can either continue this crypto-friendly legacy or chart a totally different path. 

Why it matters 

Fiat on- and off-ramps are an important way for the general public to interact with cryptocurrencies. How the cryptocurrency industry intersects with the traditional financial sector therefore remains important. Furthermore, how major financial institutions look at crypto may also impact bitcoin and other cryptocurrencies’ prices.

President Joe Biden hasn’t yet announced who he wants leading the federal bank regulator, but his rumored OCC frontrunners are University of California – Irvine School of Law Professor Mehrsa Baradaran or California Department of Financial Protection and Innovation (DFPI) Commissioner Manuel Alvarez. Both have publicly discussed cryptocurrencies in the past. University of Michigan Dean of Public Policy Michael Barr was previously rumored to be the frontrunner, but more recent reporting suggests he’s no longer under consideration. 

Breaking it down

Realistically, both Baradaran, who seems more likely to be nominated, and Alvarez are likely to focus initially on issues like COVID-19 relief and other priorities like financial inclusion should they lead the OCC. Still, both have discussed cryptocurrencies in public. While their comments are dated it's worth paying attention to their views, which suggest that if they do get involved with crypto, they're likely to be less friendly than former Comptroller Brooks. 

Baradaran has testified before Congress about whether cryptocurrency can in and of itself facilitate financial inclusion. In a July 2019 hearing, she indicated the issue isn’t necessarily technological – rather, public policy should focus on issues like whether there are places where customers can use debit cards in what she described as banking deserts. 

“There are many easier ways” than blockchain tools to provide financial access, she said at the time.

Baradaran, who is an advocate of postal banking, or allowing existing U.S. Postal Service offices to provide certain bank functions, reiterated this view in another hearing on the best ways to distribute COVID-19 relief last year.

“How do we get people to meet people where they’re at and make sure our solutions match the problem? The problem here is the banking deserts, it’s the unbanked and underbanked, and we have technology to meet those people and I think that’s critical at this juncture,” she said. 

Prior to his role at the DFPI, Alvarez was the general counsel at Affirm, a financial technology company providing loans for purchase financing, meaning he has experience within the financial technology industry. 

He also testified about regulatory issues and how cryptocurrency companies touch on them in a 2019 hearing in an official capacity. Speaking from his role as a consumer protection regulator, he said some of the key risks that any regulatory regime would face include theft, ensuring appropriate security, business continuity planning and transparency about fees. 

These are issues his team had already begun working on, he said at the time. 

“In the case of this emerging industry, I think the key is balance. It is important not to be so restrictive or prescriptive as to inadvertently stifle an emerging technology and industry out of California, but not so hands-off as to encourage strident actors that would take advantage of California consumers and investors,” he said. 

Both Baradaran and Alvarez, like Securities and Exchange Commission Chair nominee Gary Gensler and rumored Commodity Futures Trading Commission Chair nominee Chris Brummer, were on Biden’s transition team.

In any event, there may be other pressures that shape policy toward crypto – last December, House Financial Services Committee Chair Maxine Waters (D-Calif.) asked Biden to rescind all of Brooks' OCC guidance.

China’s blockchain dreams

China has been working on its central bank digital currency, the digital yuan (otherwise referred to as the DCEP), as well as its Blockchain-based Services Network (BSN) for a few years, and we’re starting to get a clearer picture of what China is trying to do. 

We’re also starting to get a clearer view of how China plans to internationalize both BSN and DCEP. This could have a significant impact on the outside world. In fact, this is something incoming SEC Chair Gary Gensler once war-gamed alongside a number of former U.S. cabinet secretaries and researchers. 

My colleagues explored China’s blockchain vision this week, examining how the country plans to grow its efforts beyond its national borders. The digital currency wing of the People’s Bank of China (PBoC), China’s central bank, is participating in a multinational cross-border payment pilot for digital currency trading platforms, for example, reports David Pan

The government might be looking to work with other central banks to see how it can internationalize the digital yuan. 

Meanwhile, BSN is being built as a censorable, centralized system that can support the same decentralized applications (dapps) that are operational on existing blockchain networks, Anna Baydakova reported.  The plan is to expand BSN this year to different provinces and possibly different countries. 

But BSN is very different from a decentralized, public blockchain. As Yifan He, the CEO of one of the firms behind BSN, said, “If they do something wrong we can delete the whole chain.” 

Both BSN and DCEP have yet to launch at scale, but it’s clear that when they do, they may be able to immediately operate internationally.

Biden’s rule

While Securities and Exchange Commission Chair nominee Gary Gensler and Consumer Financial Protection Bureau Director nominee Rohit Chopra have been passed out of committee, the Senate has yet to schedule confirmation votes on either one.

Changing of the guard

Key: (nom.) = nominee, (rum.) = rumored, (act.) = acting, (inc.) = incumbent (no replacement anticipated)
Key: (nom.) = nominee, (rum.) = rumored, (act.) = acting, (inc.) = incumbent (no replacement anticipated)

Still no official word on the Commodity Futures Trading Commission either (or the OCC, for that matter).


Outside crypto:

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