The OCC Cryptocurrency Custody Letter has been studied for years

OCC Cryptocurrency Custody Letter Has Been Studied For Years - 0 9rYkwWtCJXMLZC8A federal banking regulator's decision to allow banks to provide cryptocurrency custody services may have seemed foolhardy, in fact the agency has been watching and studying cryptocurrencies for years.

New opportunities for banks

The Office of the Comptroller of the Currency (OCC) announced last month that federally regulated banks could provide other services to crypto startups in addition to custody. It recently emerged that the OCC was considering the move even before controller Brian Brooks occupied the lead role at the agency.

In fact, the OCC has been looking into the cryptocurrency space since at least 2018 and likely before, said Jonathan Gould, senior vice controller and chief advisor. He said the very act of writing an interpretative letter typically takes months.

Last month's OCC interpretative letter opened the door for banks to provide new services to crypto companies in addition to custody services for cryptocurrencies, but it is unlikely that banks will immediately begin providing both services.

Rather, these letters should help banks who are also interested in cryptography determine if it makes sense for them to start moving into space, Gould said. Banks still need to make sure they have proper risk management practices in place, and if not, make sure they are legally prepared to offer these services before they can actually do so.

A slow process

The process of creating an interpretative letter typically begins when a bank makes a request or the OCC sees a series of similar requests from different institutions. The actual act of drafting interpretive letters can take weeks or months, Gould said.

“The kind of process to actually write an interpretive letter like this doesn't necessarily take a huge amount of time,” he said. "But a little reflection on the legal and other issues associated with a problem can take much longer depending on the complexity of the problem."

The letter is only the beginning of a longer process. The OCC will interact with banks in their next steps if they decide to pursue crypto services. "There are a whole host of legal, regulatory and supervisory expectations that we have," he said.

“Especially with the new activities that involve some sort of iterative and interactive dialogue with OCC supervisors, about how the XYZ activity can be carried out safely and reliably, whatever the associated risk when the activity is managed appropriately and etc."

Long term

The OCC had been considering legal and supervisory issues around cryptocurrencies for years before Brooks joined the agency following his previous role at Coinbase. But Brooks was able to bring specific insights into the crypto space to the agency.

Banks that are now interested in expanding into crypto should contact their local OCC supervisors if they have any further questions, and Gould said he hopes institutions that are looking at cryptocurrencies will reach them sooner or later.