Exactly 2 months ago, the OCC (Office of the Comptroller of Currency) – headed by a former Coinbase lawyer – released a major public statement announcing that all nationally chartered banks in the U.S. can provide custody services for cryptocurrencies. It was the talk of the town, featured in our Wolf Den Newsletter and numerous other news outlets across the crypto space. But with this great news came further questions and a lack of regulatory clarity, with stablecoins in particular falling in a grey area that needed further attention.

This Monday, September 21st, the OCC, with the help of the SEC, released an “Interpretative Letter” addressing how stablecoins should be treated under the law. Recognizing the growing demand and popularity of this cryptocurrency subset, the OCC’s statement first defined what a stablecoin was, a necessity considering regulators’ lack of clear definitions in the space. They defined a stablecoin as, “a unit of cryptocurrency that is backed by a single fiat currency on a 1:1 basis.” They further stated that stablecoins could be backed by multiple alternative assets including cryptocurrency or commodities, but avoided broadening the definition for those purposes.

The letter gave banks guidance on how they need to manage their stablecoin reserve accounts, along with how they should go about forming contractual agreements with stablecoin issuers. Within the letter, the OCC made it strictly clear that banks must comply with the BSA (Bank Secrecy Act) when working with other entities or on their own. This act means “financial institutions are required to assist U.S. government agencies in detecting and preventing money laundering.” It was also noted in the letter that banks must comply with section 326 of the USA Patriot Act, which requires banks to verify and identify the customers opening accounts similar to KYC.

Some may regard these government stipulations as an infringement of the privacy that cryptocurrency offers, but it is a common trend that crypto is becoming less and less private with mainstream adoption. The OCC is just one example of banks and the government stepping into crypto, but the same is happening in reverse as well. For example, popular crypto exchange Kraken recently received a banking charter in Wyoming, allowing it to custody crypto and perform typical legacy banking services. The Kraken case serves as an example of crypto stepping towards the mainstream banking world. The Wolf Team believes that with the passage of time, these two sectors will continue to merge, decreasing the privacy crypto once offered while increasing broader adoption.

You can read the entire letter here.

By Adam Tarlowski