Federally Chartered Banks Can Use Stablecoins: OCC

The Office of the Comptroller of the Currency (OCC) has issued an interpretive letter allowing federally chartered banks to use stablecoins, or cryptocurrencies with relatively stable prices, for standard banking transactions like payment activities. The letter further states that banks can participate in validating stablecoin transactions or Independent Node Verification Networks (INVN) in a blockchain.

"INVNs and related stablecoins represent new technological means of carrying out bank-permissible payment activities," the agency stated in its letter, adding that banks have long used other forms of cashless payments, such as cashiers' checks and travelers' checks.

The OCC's letter was released on the same day as the end of a comment period for a Financial Crimes Enforcement Network (FinCEN) proposal requiring exchanges to maintain records for transactions involving self-hosted wallets. That rule could multiply costs and bureaucratic overhead for crypto businesses.

The latest missive from the OCC could open new markets and herald an era of speedy settlement time for payment transactions. Some banks, such as JPMorgan Chase & Co. (JPM), already use digital coins to settle transactions for institutional clients. Payment processor Visa Inc. (V) has also partnered with Circle Internet Financial, issuer of the USDC stablecoin, to make it available to merchants for payment transactions on its platform.

A Regulatory Step Forward

While stablecoins have gained popularity in the past couple of years, their regulatory status has mostly remained unclear. Under acting commissioner Brian Brooks, who was previously chief legal officer at crypto exchange Coinbase, the OCC has moved quickly to fill in the gap. It issued another interpretive letter last year allowing banks to provide services, including custody, to companies that issue stablecoins.

In its latest letter, the agency drew parallels between electronic stores of value (ESVs) such as debit cards and stablecoins to make its case. "Like ESV, stablecoins can serve as electronic representations of those U.S. dollars. Instead of value being stored on an ESV card, the value is represented on the stablecoin. This distinction is technological in nature and does not affect the permissibility of the underlying activity," the letter states.

It also points to the benefits, such as resiliency, of using decentralized systems like blockchains for settlement transactions and leaves the door open for financial institutions to include "multiple different cryptocurrencies including but not limited to stablecoins" on their blockchain.

An Enthusiastic Reception

As with its previous missive, the OCC's latest guidance has met with an enthusiastic reception from the crypto community and commentators. In a conversation with Forbes, Stephen Palley, attorney with Anderson Kill, compared the OCC's guidance with that of its position on internet banking during its early days. "Early internet banking was met with approval by the OCC and is now ubiquitous, in spite of early concerns about the safety or practicality of such technology for secure banking services," Palley stated. "The OCC continues to show an interest in and desire to engage with new financial technology that consumers demand."

According to Kristin Smith, executive director of the Blockchain Association, an advocacy group for cryptocurrencies, "The OCC's interpretive letter shows that there are those in government who actually understand that cryptocurrency networks are the foundation of a next-generation payments system."

Jeremy Allaire, CEO of Circle, said that the OCC's guidance was a "huge win" for cryptocurrencies and stablecoins. "We are on a path towards all major economic activity being executed on-chain. It is tremendous to see such forward-thinking support from the largest regulator of national banks in the United States," he stated on Twitter. Circle's USDC is among the biggest stablecoins in the market today.