American Regulators Warm up to Crypto, Banks Authorized to Hold Stablecoins

American Regulators Warm up to Crypto, Banks Authorized to Hold Stablecoins

September 22, 2020

Key Takeaways

  • OCC in the U.S. has granted banks access to hold reserves of fiat deposits backing cryptocurrency-based stablecoins. 
  • The SEC also published a statement on top of it which would exempt some stablecoins from invoking securities laws.
  • While a big win for crypto, crypto activists demand the service to be extended to non-hosted wallets as well. 

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The U.S. Office of the Comptroller of the Currency (OCC) cleared national banks and Federal Savings Associations (FSA) to hold stablecoin reserves. Further, the SEC also moved to ease the application of securities law on digital assets.

Banks to Make Room for Stablecoins

The OCC has laid the foundation for further collaboration between crypto and banking services, beginning with fiduciary reserves for stablecoins like USDC and others. 

The acting Comptroller of the Currency, Brian P. Brooks, said in the press release from OCC: 

“National banks and federal savings associations currently engage in stablecoin related activities involving billions of dollars each day. This opinion provides greater regulatory certainty for banks within the federal banking system to provide those client services in a safe and sound manner.” 

The supporting letter by OCC Chief Counsel Jonathan Gould lists the set of guidelines for the banks on providing services to stablecoin issuers. The principal rule is for the stablecoin issuers to maintain a 1:1 ratio between the total deposits and the total supply of the cryptocurrency issued. 

The banks will also be required to perform at least one audit of the stablecoins on a daily basis to verify the above rule. Moreover, appropriate insurances must also be taken against those deposits to cover other liquidity risks.  

Apart from that, the banks and their customers must also comply with the Bank Secrecy Act (BSA) and anti-money laundering rules laid by FinCEN

Furthermore, the Securities and Exchange Commission (SEC) released an independent press release to clarify the application of securities laws on stablecoins. The Commission said that each project requires independent assessment and,  “market participants may structure and sell a digital asset in such a way that it does not constitute a security and implicate the registration.”

The announcements come in less than a week after the State of Wyoming granted its first banking license to a cryptocurrency exchange, Kraken. 

Earlier, five countries of the European Union also moved to regulate stablecoins, demanding for the deposits to be held only in EU-approved institutions and denominated in EU currencies. 

Hosted Wallet Criteria Creates a Gap 

Though the news is positive for the industry, the executive director of the Blockchain Association, Kristin Smith, is demanding a more progressive stand on “hosted wallets.” 

As per the guidelines, banking services will only be granted to issuers holding their assets with hosted wallets. In cryptocurrency, hosted wallets are third-party applications that hold the cryptocurrency for its customers by storing the private key to the wallet. 

A non-hosted wallet grants digital asset owners far more control over their assets. These kinds of wallets are also much more secure as there is less third-party risk.

Nevertheless, as crypto regulations remain in the grey area, bank deposits of stablecoins will provide greater legitimacy to the ecosystem. 


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