U.S. Bank Regulator Approves National Banks to Facilitate Cryptocurrency Transactions

The banks in the US are now being granted a fresh permission to offer regulated crypto brokerage services as the US Office of the Comptroller of the Currency (OCC) has approved it. This approval includes permission for the banks to operate as intermediaries in crypto trading for their customers without holding the actual asset and representing them on their balance sheet.

This move was welcomed with great enthusiasm, as it opens new domains for regulated crypto trading and brings traditional financial services like banks closer to the crypto market. An interpretive letter was released on Tuesday by the comptroller, in which it was obviously stated that banks, from now on, can act as principals in crypto trades with customers. This trade option comes with the handy leverage that, while facilitating one customer on a trade, the bank can enter an offsetting trade with another customer. This hedge model operation represents a low-risk principal activity, normally found in traditional markets.

How the OCC’s Interpretive Letter Impacts Crypto Trading

It is clear from the letter that this approval comes as a result of different banks proposing the same idea of conducting riskless principal crypto-asset transactions for their customers through their bank’s service systems. The interest of traditional financial institutions like banks in the crypto industry has been on the rise since the current US presidency has taken a pro-crypto stance.

According to the OCC, the permission for this scheme seems fit as it is better for individuals to carry out crypto trading transactions in a riskless principal environment through a government-regulated entity like banks. By cutting the non-regulated or less-regulated intermediary, the OCC believes that crypto trading can now take place in a safer and more informed environment, as banks are now the force that operates this function.

While approving the move, the OCC has emphasized that these banks themselves should take responsibility for operational, compliance, and market risks. It has been reiterated several times in the letter that before conducting any crypto-related transactions, banks must obtain necessary legal permissions from the customer. The letter also emphasizes that banks should discern their chartered powers and their limits before going into operational mode with the new scheme.

The letter from OCC additionally points out that there is a counterparty credit risk associated with riskless principal transactions. However, since banks are traditionally expected to manage this risk gracefully, it should not be much of a problem; however, banks must exercise necessary caution prior to partnering with individual customers regarding riskless principal transactions in crypto trading.

Within the letter from OCC, the agency guidance has cited 12 U.S.C. § 24, which already permits banks to conduct riskless principal transactions as part of the “business of banking”. By drawing a clear distinction between crypto assets and regular banking, the letter says that crypto assets are viewed as securities and that riskless principal transactions involving securities were already a part of core banking. This draws attention to the pro-crypto stance taken by the OCC, as it is validating its own decision based on existing foundational principles.

OCC’s Perspective: Support for Crypto Integration

This letter is a non-binding guidance from the agency to the banks regarding trading crypto assets under the existing law. However, a rather interesting aspect is that this letter came right after the head of OCC, Jonathan Gould, took a supportive stance on crypto firms.

According to Gould, there is no need to view crypto firms that seek a banking charter as a separate entity from traditional finance. Gould went a step ahead and said that traditional banks have offered electronic custody services of fiat currencies for a long time, and that banks have the ability to evolve. It is this precise fact that makes Gould think that there is no justification in sidelining digital assets in the traditional finance space.

This is an evolutionary move rather than a revolutionary one, according to industry experts and crypto enthusiasts. Many share the same views as Gould and say that this was a decision that should have gained clarity years ago. Since the banks are already managing riskless principal transactions efficiently, there is little to no reason for worry in extending this service to the crypto trading realm. Since banks are highly regulated, this process becomes far more transparent, and traditional processes like taxation on capital gains become clearer and concise.

The Future of Crypto Trading Under Regulated Banks

The choke that was exerted on the banks that interacted with crypto during the Biden administration is receiving widespread criticism after the OCC’s approval letter. This once again proves the pro-crypto stand taken by the Trump administration. Under these new circumstances of increased regulatory clarity, the crypto market is expected to boom significantly.

Both seasoned investors and retail traders may find renewed confidence in crypto, which had taken a hit from the fear sentiment that had taken over the market since the November crash. In addition to this, as several banks enter the race, new and diverse products may be launched in the market, which may be tailored to attract the most customers, both traditional investors and crypto enthusiasts are eagerly waiting for further developments on the matter.