On January 4, 2021, the Office of the Comptroller of the Currency (“OCC”) published an Interpretive Letter clarifying the authority of national banks and federal savings associations to participate in independent node verification networks (“INVN”) and use stablecoins to conduct payment activities and other bank-permissible functions.

A stablecoin is a type of cryptocurrency that is backed by an asset, such as a fiat currency or a commodity, which is designed to have a stable value as compared with other types of cryptocurrency.  In contrast, an INVN is a shared electronic database where copies of the same information are stored on multiple computers, and has participants, known as nodes, which typically validate transactions, store transaction history, and broadcast data to other nodes.  The OCC clarified that, as long as banks comply with applicable law and sound banking practices, “a national bank or federal savings association may validate, store, and record payments transactions by serving as a node on an INVN.”  Similarly, “a bank may use INVNs and related stablecoins to carry out other permissible payment activities.”

This is the third installation of guidance issued by the OCC authorizing banks to offer cryptocurrency-related services.  On July 22, 2020, the OCC published an Interpretive Letter clarifying the authority of banks to provide cryptocurrency custody services for customers.  In the July 2020 letter, the OCC “found that the authority to provide safekeeping services extends to digital activities and, specifically, that national banks may escrow encryption keys used in connection with digital certificates because a key escrow service is a functional equivalent to physical safekeeping.”  On September 21, 2020, the OCC published an Interpretive Letter confirming the authority of banks to hold deposit “reserves” on behalf of customers that issue certain types of stablecoins.  The September 2020 letter specified that banks can only hold reserve deposits where there is a direct one-to-one relationship with the single fiat currency for which the stablecoin provides a digital representation.

The OCC’s latest cryptocurrency guidance now allows banks to serve as a node on an INVN and use INVNs and related stablecoins to conduct permissible banking activities, including authorized payment activities.  The OCC noted that it “has repeatedly recognized that banks may conduct permissible payment activities using new and evolving technologies.”  In the OCC’s view, the use of INVNs and stablecoins to facilitate payments transactions simply represents a new means of performing a bank’s permissible functions.

The OCC also explained that allowing banks to engage in INVNs may enhance the efficiency, effectiveness, and stability of payments activities, and also limit tampering because information is only added to the network after consensus is reached among the nodes validating the information.  The OCC further noted that the use of stablecoins to facilitate payments allows banks to capture the advantages that INVN may present in a manner that retains the stability of fiat currency.

The OCC cautioned banks to be “aware of potential risks when conducting INVN-related activities, including operational risks, compliance risk, and fraud[,]” stating that these “[n]ew technologies require enough technological expertise to ensure banks can manage these risks in a safe and sound manner.”

Acting Comptroller of the Currency, Brian Brooks, inferred in the related press release that the latest guidance is geared toward leveraging the cryptocurrency industry to keep pace, stating that “[w]hile governments in other countries have built real-time payments systems, the United States has relied on our innovation sector to deliver real-time payments technologies.”