On August 10, 2022, four Senators, Elizabeth Warren (D-MA), Dick Durbin (D-IL), Sheldon Whitehouse (D-RI), and Bernie Sanders (I-VT), sent a letter to Acting Comptroller of the Currency Michael Hsu, asking him to reverse four interpretive letters regarding whether it is permissible for national banks to provide cryptocurrency services.

Under Mr. Hsu’s predecessor, Acting Comptroller Brian Brooks, the OCC issued multiple interpretive letters related to cryptocurrencies.  The letters were issued in July 2020 (Interpretive Letter 1170), October 2020 (Interpretive Letter 1172), and January 2021 (Interpretive Letter 1174).  In these letters, the OCC determined that banks were authorized to engage in certain crypto-related activities, such as providing cryptocurrency custody service for customers, holding deposits that serve as reserves for certain stablecoins, and facilitating stablecoin payment activities.

In November 2021, the OCC issued Interpretive Letter 1179 affirming the opinions set forth in the OCC letters issued under Acting Director Brook, and adding that cryptocurrency activities were permissible for national banks “provided the bank can demonstrate, to the satisfaction of its supervisory office, that it has controls in place to conduct the activity in a safe and sound manner.”  Specifically, the November 2021 letter laid out a supervisory process that requires a bank to notify its supervisory office, implement procedures to mitigate the risks of entering the cryptocurrency market, and demonstrate that it is able to offer cryptocurrency services in a safe and sound manner.

The four Senators, in their letter to Acting Comptroller Hsu, explain that the OCC is responsible for safeguarding the financial system from the type of risk and volatility posed by the cryptocurrency market.  The Senators argue that all four interpretive letters fall short of providing guidance that protects consumers and instead increases risk of harm to consumers and banks.  They assert that the letters issued under Acting Comptroller Brooks “granted banks unfettered opportunity to engage in certain crypto activities and remain problematic” and that the most recent guidance “failed to properly address the shortcomings of the preceding interpretive letters.”  The Senators’ letter goes on to pose a series of questions regarding the supervisory process set forth in Interpretive Letter 1179.  The Senators request information about which banks have obtained OCC permission to engage in crypo-related activities, which banks have been denied permission, and which banks have been engaged in crypto-related activities prior to the issuance of Interpretive Letter 1179.

The absence of a comprehensive federal framework continues to create regulatory uncertainty about  banks’ engagement in crypto-related activities.  However, restricting the ability of banks to engage in these activities may push consumers to less regulated entities and increase the risks of fraud, theft, and other criminal activity.