Regulatory Note — Crypto-Assets – 2022 Regulatory Agenda
Yesterday, November 23, the three federal banking agencies issued a Joint Statement on Crypto-Asset Policy Sprint Initiative and Next Steps. While brief, the Joint Statement outlined the agencies’ regulatory agenda for the coming year, which is intended to provide additional public clarity on banks’ crypto-asset activities. The Joint Statement does not, however, provide a specific timetable for agency action.
The Joint Statement is not the only source for banks assessing the prospects for their crypto-related businesses in 2022 and likely agency action. Acting Comptroller Michael Hsu delivered remarks on November 16 that included a description of the agencies’ approach to crypto-related activity, and the Joint Statement cited as a source for identifying key risks the FDIC’s May 2020 Request for Information and Comment on Digital Assets and the responses to it. These two documents include some indications of how the 2022 review may proceed.
Some highlights from these public documents:
Bank activities to be reviewed. The agencies will look at six crypto-asset activities. For at least one category, ancillary custody services, the agencies may issue a request for information on these services before providing any further clarity.
Crypto-asset safekeeping and traditional custody services. These services include facilitating a customer’s exchange of crypto-assets and fiat currency, transaction settlement, trade execution, record keeping, valuation, tax services, and reporting.
Ancillary custody services. These services potentially could include staking, facilitating crypto-asset lending, and distributed ledger technology governance 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 the balance sheet.
Agency approach. Acting Comptroller Michael Hsu provided insight into how the agencies will evaluate crypto-related activities by banks. His observations on these activities are worth quoting in full:
The message from [the OCC actions] is that the agencies are approaching crypto activities very carefully and with a high degree of caution. We expect banks to do the same. To the extent the OCC’s prior communications have been interpreted as tacit encouragement to engage in crypto activities, the forthcoming releases will clarify that safety and soundness is paramount. The releases should not be interpreted as a green light or a solid red light, but rather as reflective of a disciplined, deliberative, and diligent approach to a novel and risky area. We will proceed carefully and cautiously and will hold banks to the same.
Importantly, he implied that the OCC may be pulling back from earlier statements on crypto-related activities.
With respect to stablecoins specifically, FDIC Chairman Jelena McWilliams expressed similar sentiments about the agencies’ approach in remarks on October 21: “stablecoins should be subject to well-tailored government oversight. That oversight should rest on the foundation that stablecoins issued from outside the banking sector are truly backed 1:1 by safe, highly liquid assets.”
Legal permissibility. The first order of business is likely to be a review of whether each of these activities is permissible for a bank. In his November 16 remarks, the Acting Comptroller said that the OCC had concluded its review of crypto-related interpretive letters and will be providing some further clarity. Reading between the lines, not all the conclusions in those letters may survive in their current form.
Risks to be considered. The clarifications to be provided next year will cover several “key risks:” those related to safety and soundness, consumer protection, and compliance. Further detail on the applicable risks and appropriate management may be found in the FDIC’s May 2021 Request for Information on digital assets and the responses thereto.
Capital and liquidity. Over what is probably a longer time horizon, the agencies will assess capital and liquidity standards. The agencies will consult with the Basel Committee on Banking Supervision on such standards. In June 2021, the Basel Committee’s published a consultative document, Prudential treatment of cryptoasset exposures, which discusses capital and liquidity among several other issues. The Basel Committee has not yet responded to the comments received.