02 / 03 / 21
Details of the OCC’s Letter on Stabecoin Custody by Federally Chartered Banks
On January 4, 2021, the Office of the Comptroller of the Currency published an on stablecoin custody by federally-chartered banks. In the letter, the OCC stated that all institutions with a federal banking charter could offer crypto custody for stablecoins. The letter states that banks are allowed to use new technology including blockchain networks and related stablecoin to conduct permissible functions.
More Clarity on Digital Currencies for the Banking Sector
The letter is the latest from the US Treasury Department that provides clarity to banks on how they can engage with digital currencies. Before the OCC’s letter, there was no clarity on whether banks could use blockchains as payment networks. However, the OCC has now made it clear that US banks can use stablecoins to facilitate payments.
The letter also clarified that banks could utilize independent node verification networks or blockchains. It also states that a national bank or federal savings association could act as an independent node while complying with all relevant laws and regulations.
According to the interpretative letter, there had been a growing demand for faster and more efficient payment methods that use decentralized technology. It states that using stablecoins would offer efficiency and speed. Additionally, it would offer stability to existing currencies.
The letter has removed any legal ambiguity regarding the ability of banks to connect to blockchains as validator nodes. Consequently, they can transact stablecoins for their customers, who are looking for greater speed, efficiency, interoperability, and the low cost associated with these products.
An Exciting Time for Crypto Payments
The OCC has issued a lot of guidance in recent weeks regarding the ability of banks to interact with new financial technology. Banks have increasingly expressed interest in entering the stablecoin market. Even without the guidance, the stablecoin market has been thriving due to the advantage it offers over existing payment methods.
On the other hand, crypto companies have expressed growing interest in working with banks to facilitate Bitcoin payments. The main benefit of working with a bank is that they will benefit from their highly developed compliance programs. Creating a compliance program from scratch is time-consuming and costly. Besides that, there are numerous legal risks due to the lack of experience in most of these firms.
The clarity provided by the OCC in recent weeks will play an important role in helping to open up the crypto market. It will be much easier for merchants to accept cryptocurrency payments when crypto firms have a well-trusted bank as their partner. For banks, it will ensure that they can safely enter the crypto payments sector without exposing themselves to any compliance risks.
Making the US Competitive
The clarification will be significant in enabling real-time payments. In other nations around the world, governments have worked to create real-time payment networks. However, the US has chosen to give the private sector the legal clarity they need to create these networks. By doing so, it will ensure that consumers get the best options possible due to private-sector competition.
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