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Regulators Gallop To Cryptocurrency's "Wild West"

Philip R. Stein

 Blog ImageEven enthusiastic participants in the booming cryptocurrency sector have at times described it as having a distinctly “Wild West” feel at this relatively early stage of its development. Lately, though, there has been no shortage of statements from regulators signaling their intentions to bring far more order to the crypto wilderness.  


A joint statement released on November 23 by the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC)   provided notice that, “Throughout 2022, the [agencies that regulate the financial system] plan to provide greater clarity on whether certain activities related to crypto-assets conducted by banking organizations are legally permissible, and expectations for safety and soundness, consumer protection, and compliance with existing laws and regulations related to: 

  • Crypto-asset safekeeping and traditional custody services. 
  • Ancillary custody services. 
  • Facilitation of customer purchases and sales of crypto-assets.
  • Loans collateralized by crypto-assets. 
  • Issuance and distribution of stablecoins.
  • Activities involving the holding of crypto-assets on balance sheet.” 

The agencies said they will also undertake an assessment of “the application of bank capital and liquidity standards to crypto-assets for activities involving U.S. banking organizations and will continue to engage with the Basel Committee on Banking Supervision on its consultative process in this area.”

Concurrently, the OCC issued Interpretive Letter 1179, which provided clarifications of prior OCC guidance regarding permissible crypto-asset activities for national banks. The interpretive letter also detailed new requirements for banks conducting any such activities. It’s clear from the letter that national banks' existing crypto-asset services will be subject to heightened scrutiny, and prospective new services will need to be pre-approved.

U.S. regulators also said legislation is “urgently needed” on dollar-backed stablecoins that are central to the $2 trillion cryptocurrencies market and asserted that operators of the digital tokens should essentially be treated as banks. In a report, the President’s Working Group on Financial Markets, comprising the secretary of the Treasury and the heads of all the key US financial regulators, said stablecoin issuers should become “insured depository institutions,” essentially placing them on the same footing with banks that offer saving accounts for customers. That move would subject the industry to strict regulation in return for access if necessary to emergency liquidity from regulators. The report stated that “[t]he rapid growth of stablecoins increases the urgency of this work. Failure to act risks growth of payment stablecoins without adequate protection for users, the financial system, and the broader economy.”

Notably, this flurry of statements and reports comes after China cracked down on activity in the cryptocurrency sector earlier this year, going so far as to declare all activities related to crypto trading illegal. Though U.S. regulators have to date indicated no intention of going to that length, new regulatory scrutiny is assuredly coming. Significant upticks in crypto-related litigation are highly likely to follow in its wake. An accelerated settlement of the crypto frontier appears to be afoot.  

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