US Office of the Comptroller of the Currency (OCC) Permits Banks to Engage in Cryptocurrency Business

The US Office of the Comptroller of the Currency (OCC) has shifted a significant policy, which will permit banks to do crypto business without first obtaining permission from regulators.

The US Office of the Comptroller of the Currency (OCC) has made a decisive move by shifting a significant policy that will permit banks to engage in crypto activities without needing prior approval from regulators. This action directly contradicts the Biden administration's efforts to impose restrictions on such activities and marks a return to the Trump administration's pro-crypto stance.

Announced on Friday, the move will modify an existing 2023 proposal and eliminate the requirement for banks to seek permission from the OCC to provide crypto services, such as trading, custody, and digital asset banking. However, banks will still be subject to the usual risk management protocols and will be expected to manage the risks associated with crypto activities.

"Today’s action will lessen the burden on banks and provide for consistent treatment of crypto activities, regardless of the technology. We will continue to work with our colleagues across the government and in the industry to ensure that the U.S. financial system remains competitive and innovative in the rapidly evolving landscape of digital assets," explained Rodney Hood, acting comptroller, in a prepared statement.

The move comes as crypto companies, such as Coinbase (NASDAQ:COIN), have also been pressing for greater regulatory clarity. The exchange has already sought and gained approval for banks to offer crypto custody and trading services.

Coinbase chief legal officer Paul Grewal welcomed the development, stating that "any new class of asset or technology presents unique legal and regulatory issues that must be addressed." He added, "This step by the OCC is a positive one in setting forth clear expectations and guidelines for institutions operating in this space."

Highlighting the broader context, Grewal further noted, "We are encouraged to see several regulators taking steps to provide clarity in crypto. It seems like eons ago—but it was just last year that the SEC was threatening to shut down crypto trading and custody outright. Now, several agencies are granting national banks limited ability to perform these activities."

The action also follows a period of the U.S. Securities and Exchange Commission (SEC) becoming more crypto-friendly under Mark Uyeda. The SEC recently dropped suits against leading crypto firms like Kraken and OpenSea, signaling a shift towards more open regulations. The agency also ended its lengthy court battle with Coinbase, further cementing this policy trend.

While the OCC pulled back and the Trump regime went all-in on crypto, the industry is waiting to be integrated with mainstream finance. Newly appointed "AI & Crypto Czar" David Sacks has done much of this heavy lifting in Trump's ranks to get the ball rolling. For instance, he got a 2019 SEC regulation repealed that regarded cryptos held by a bank in its balance sheet as "liabilities." This ruling had posed a significant obstacle to financial institutions engaging with crypto due to the limited classes of assets they are permitted to hold on their balance sheets.

Despite the legal and regulatory hurdles, several institutions have already begun venturing into the crypto space. For instance, Northern Trust has launched a digital asset custody service, and State Street is offering blockchain-based trade processing services.

However, even with regulators giving the all-clear and institutions beginning to take the initiative, there are still hurdles to overcome. Banks will need to manage the usual risk management burden imposed by regulators and adjust to the evolving demands of the crypto ecosystem. Furthermore, large financial institutions may not necessarily be inclined to embrace crypto due to legal and market unpredictability.

The OCC's ruling is a pivotal moment in the unfolding narrative of crypto banking, setting the stage for greater institutional adoption. Yet, the long-term impact will depend on how banks and regulators choose to shape the next generation of financial innovation in this rapidly changing landscape.