The US OCC allows banks, with certain restrictions, to hold assets in reserve for stablecoin issuers.
On September 21, 2020, the US Office of the Comptroller of the Currency (OCC) issued Interpretive Letter #1172 (the Letter), giving national banks and federal savings associations (FSAs) the greenlight to hold deposits that serve as reserves for the underlying assets backing certain “stablecoins” on behalf of customers. According to the Letter, national banks and FSAs are granted this expanded authority to hold stablecoin reserves if all of the following conditions are met:
- Deposits that constitute reserves for stablecoins are limited to stablecoin transactions involving hosted wallets.
- The stablecoins are backed by a single fiat currency.
- The stablecoins are redeemable by the holder on a one-to-one basis upon submission of a redemption request to the issuer.
According to the letter, a national bank or FSA that seeks to provide deposit services for stablecoin issuers should adhere to all of the following requirements:
- Conduct customer due diligence commensurate with the risks associated with maintaining a relationship with a stablecoin issuer, including issuer compliance with the Bank Secrecy Act (BSA) and other anti-money laundering (AML) regulatory requirements, as well as other laws and regulations, including money transmission and virtual currency business licensing obligations
- Be aware of the laws and regulations relating to deposit insurance coverage, including deposit insurance limits and “pass through” deposit insurance requirements to an underlying depositor, and provide accurate and appropriate disclosures regarding such coverage
- Verify (at least once per day) that reserve account balances are equal to or greater than the number of outstanding stablecoins issued by the issuer
- Identify and verify the beneficial owners of legal entity customers opening accounts
- Manage liquidity risk with sophistication equal to the risks undertaken, and the complexity of exposures
- Ensure that appropriate compliance controls are instituted before providing deposit services to stablecoin issuers
- Comply with all applicable laws and regulations, including federal securities laws
The Letter continues the OCC’s cryptoasset friendly posture under Acting Comptroller of the Currency Brian P. Brooks. The latest statement follows a similar letter the OCC issued in July, granting national banks and FSAs the ability to provide customers with custody services for cryptocurrencies and digital assets that are not broadly used as currencies (previously covered in this post).
The US Securities and Exchange Commission’s (SEC) Strategic Hub for Innovation and Financial Technology issued a statement in the wake of the Letter, reminding market participants to perform a careful regulatory review of all digital assets under consideration. A facts and circumstances analysis is critical to determining whether the registration, reporting, and other requirements of the federal securities laws are implicated.
For more information regarding the SEC’s guidance on this topic, see Latham’s blog post New SEC Token Guidance: This Is Howey Do It.