OCC Regulator implements innovative Cryptocurrency Guidelines for banks and futures payments

When Brian Brooks joined the Executive Currency Administrator for the Office of the Regulator of Currency (“OCC”) in May 2020, many in the industry knew that some of Brooks ’focus would be on fintech and blockchain technology.

Since then, the OCC has issued letters and explanatory guidance clarifying that banks can seize cryptocurrency and stablecoins, as well as engage in stablecoin activity. The OCC has created a Special Purpose Payment Card for FinTech companies. In December, OCC Chief Economist Charles Calomiris published a paper entitled “Chartering the FinTech Future,” in which Calomiris outlined the benefits of OCC awarding banking contracts to stablecoin suppliers.

Interpretation letter today

OCC today published Explanatory Letter 1174, which explains that banks can use new technologies, including independent node verification networks (INVNs) and stable, to carry out bank-approved activities. performance, such as payment functions. Put simply, a bank can use stables (cryptocurrencies designed to reduce price volatility) to make payment transactions easier for customers.

In doing so, a bank can issue stables, exchange stables for fiat money, as well as verify, store, and record payment transactions by filing. serve as a blockchain node (INVN).

Philosophy

OCC news today is innovative and inspiring. Not because it’s a big picture of how banks have traditionally operated but because the CRO does a special job of keeping up with the changing technology and landscape. . Many criticize the U.S. for hindering innovation and not allowing companies to come up with innovative technology that would improve our financial system. Well, the OCC is doing the same. Brooks continues to move cautiously but quickly.

As today’s OCC explanatory letter states, “over time, the financial intermediary activity of banks has evolved and changed in response to economic circumstances and customer needs. Banks have adopted new technologies to perform tasks that are permitted by banks, including payment functions. . The changing financial needs of the economy are well reflected by the growing market demand for faster and more efficient payments through the use of decentralized technologies, such as INVNs, which test and ‘recording financial transactions, including sustainable coin transactions. “

Banks have always been a place where customers could store valuable products to keep them safe and, over time, they have become an integral part of our financial and payment infrastructure. The history of the American banking system (from the passage of the National Bank Act of 1863, the Federal Reserve Act of 1913 and the creation of the FDIC in the 1933 Banking Act) tells a story of changing governance to changing economic and technological issues.

Stephen Palley, a partner in the Washington DC law firm of Anderson Kill, drew the symbolism to an application for internet banking, explaining that “Internet banking met early with the approval of the OCC and is now ubiquitous, despite early concerns about the safety or practicality of such technology for secure banking services. The OCC continues to show interest and desire to engage with new financial technology that consumers want. ”

Seen against this historical backdrop, OCC’s latest letter responds squarely on the framework of a prudent conservative ruler creating rules on the road to new and powerful technology and adapting to changing times and needs. consumers.

What it really means

So what does this really mean for the payment systems as we know it today?

While the U.S. financial system operates relatively smoothly, traditional payment rails remain slow, expensive and subject to banking and vacation hours.

OCC’s guidance opens up the possibilities for banks to use INVNs and stablecoins to transfer money between financial institutions faster and without the need for a government intermediary.

Kristin Smith, Executive Director of the Blockchain AssOciation noted to me, “The OCC ‘s explanatory letter shows that there are those in government who truly understand that cryptocurrency networks are the foundation of the next generation payment system. Stables, like USDC, can power 24-hour real-time payments in a way that the U.S. payments infrastructure cannot handle. ”

Nic Carter, Partner of Castle Island Ventures, said this will allow banks to “take advantage of the standard features of a public blockchain. ”

Banks that embrace the use of INVNs and stables could also significantly increase cross-border trading efficiency, but that will require banks in the U.S. and abroad to implement much technology.

Carter warned, “I do not see stables replacing traditional financial railways, but this is a crucial first step in normalizing the idea of ​​a public blockchain as another settlement infrastructure that banks can adopt. to him freely. ”

The financial future looks bright.