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On November 23, the OCC issued Interpretive Letter 1179, which clarified and expanded on prior interpretive letters concerning bank engagements in cryptocurrency activities. Interpretive Letter 1179 also addressed the OCC’s authority to charter national trust banks. According to the OCC, national banks and federal savings associations may engage in certain cryptocurrency activities discussed in Interpretive Letters 1170, 1172, and 1174, provided a bank is able to “demonstrate, to the satisfaction of its supervisory office, that it has controls in place to conduct the activity in a safe and sound manner.” Legally permissible activities include those pertaining to (i) cryptocurrency custody services; (ii) the holding of dollar deposits to serve as “reserves backing stablecoin in certain circumstances”; (iii) acting “as nodes on an independent node verification network” to verify customer payments; and (iv) bank engagements with distributed ledger technology to facilitate payment transactions for certain stablecoin activities. A bank intending to engage in such activities must first notify its supervisory office and should not engage in any activity until it receives permission. Supervisory offices must assess whether a bank’s risk management systems and controls are sufficiently adequate for engagement in such activities. “Today’s letter reaffirms the primacy of safety and soundness. Providing this clarity will help ensure that these cryptocurrency, distributed ledger, and stablecoin activities will be conducted by national banks and federal savings associations in a safe and sound manner,” acting Comptroller Michael Hsu stated in an agency press release. “Because many of these technologies and products present novel risks, banks must be able to demonstrate that they have appropriate risk management systems and controls in place to conduct them safely. This will provide assurance that crypto-asset activities taking place inside of the federal regulatory perimeter are being conducted responsibly.”
The Interpretive Letter also addressed OCC standards for chartering national bank trusts, as previously discussed in Interpretive Letter 1176. The OCC reiterated that it “retains discretion to determine if an applicant’s activities that are considered trust or fiduciary activities under state law are considered trust or fiduciary activities for purposes of applicable federal law.” The OCC further emphasized that the OCC’s chartering authority does not expand or modify current responsibilities under 12. C.F.R. Part 9 for national banks that have already been granted fiduciary powers, and that “national banks currently conducting activities in a non-fiduciary capacity that are not subject to Part 9 have not, and will not, become subject to 12 C.F.R. Part 9 because of the letter.”
On November 3, acting Comptroller of the Currency Michael J. Hsu spoke before the American Fintech Council’s Fintech Policy Summit 2021 and warned that “[t]he rebundling of banking services by fintechs and the fragmented supervision of universal crypto firms pose significant medium- to long-term risks to consumers, businesses, and financial stability.” Hsu also noted that large “universal” cryptocurrency firms interested in offering a wide range of financial services should “embrace comprehensive, consolidated supervision” like that given to banks. “Crypto firms today are regulated at most only partially and selectively, with no single regulator having a comprehensive view of the firm as a whole,” Hsu stated, adding “[t]his warrants greater attention as crypto firms, especially the universals, get bigger, engage in a wider range of activities and risk-taking, and deepen their interconnectedness within the crypto ecosystem and with traditional finance.” Warning that these “synthetic banking providers” (SBPs) could create a “run risk” and regulatory arbitrage, Hsu stressed the importance of removing “the disparity between the rights and obligations of banks and the rights and obligations of synthetic banking providers by holding SBPs to banking standards.” He further warned that customers’ needs must be met in a way that is reliable, consistently safe, sound, and fair, and discussed several reasons why more SBPs have not sought to become banks, including that “regulators have been unpredictable with regards to chartering new banks and approving fintech acquisitions of banks.” Establishing a clear, shared approach to the bank regulatory perimeter related to emerging technologies can address this challenge, he advised.
Hsu also announced that the OCC concluded its review of recent bank charter applications and cryptocurrency-related interpretive letters and stated that the agency will communicate its determinations and feedback to bank charter applicants in the coming weeks. Findings from a “crypto sprint” done in conjunction with the FDIC and Federal Reserve will also be communicated shortly. “The content of these communications—on the chartering decisions, interpretive letters, and the crypto sprint—will be broadly aligned with the vision for the bank regulatory perimeter laid out here today,” Hsu stated.
On May 25, the Nebraska governor approved LB 649, the Nebraska Financial Innovation Act, which creates a bank charter for companies that hold cryptocurrencies. The new act defines “digital asset depository institutions” as banks or financial institutions that hold certain digital assets, and will allow existing state-chartered banks to establish areas focused on cryptocurrency services. New businesses will also be able to gain a state banking charter as digital asset depositories. The act provides, among other things, that “at all times, a digital asset depository shall maintain unencumbered liquid assets denominated in United States dollars valued at not less than one hundred percent of the digital assets in custody” and that “compliance with federal and state laws, including, but not limited to, know-your-customer and anti-money-laundering rules and the federal Bank Secrecy Act, is critical to ensuring the future growth and reputation of the blockchain and technology industries as a whole.”
On February 5, the OCC announced that it conditionally approved a Washington state-chartered trust company’s application to convert to a national trust bank. According to the OCC, the trust company—which will provide cryptocurrency custody services for clients in a fiduciary capacity—“is currently in the organizational phase of development and will have up to 18 months to meet the terms of its conditional approval before it converts to a national trust bank and begins to operate.” By receiving a national trust bank charter, the trust company will be allowed to provide nationwide services to customers through offices in Seattle, Boston, and New York, and over the internet. The trust company also intends to expand its custody services to support additional types of digital assets beyond cryptocurrencies, including certain tokens and stable coins, and plans to eventually offer, among other things, client-to-client trading and lending platforms. The OCC notes that approval of the conversion is subject to several conditions, including that the trust company “not engage in activities that would cause it to be a ‘bank’ as defined in section 2(c) of the Bank Holding Company Act.”
On January 11, the OCC published an interpretive letter #1176 addressing the OCC’s authority to charter national banks within the scope of 12 U.S.C. § 27(a) of the National Bank Act. As described by the OCC, the statute “recognizes the authority of the OCC to charter a bank that limits its operations to those of a trust company and activities related thereto.” Trust company activities include those “permissible for a state trust bank or company even if those state authorized activities are not necessarily considered fiduciary in nature under 12 U.S.C. § 92a and 12 CFR Part 9.” Accordingly, the letter explains that a national bank chartered under 12 U.S.C. § 27(a) is not limited to fiduciary activities as defined for purposes of 12 C.F.R. Part 9 and may engage in any permissible activities of a trust company. The letter also discusses (i) standards the OCC considers when assessing whether an activity is conducted in a fiduciary capacity; (ii) implications for chartering de novo institutions that limit activities to those of a trust company; (iii) permissible activities of converting state-chartered institutions and the handling of nonconforming assets; and (iv) permissible activities for national banks that do not have fiduciary powers.
On January 13, the OCC announced it has conditionally approved a South Dakota non-depository public trust company’s application to convert to a national trust bank. The digital bank—which offers digital asset and cryptocurrency custody services in certain states—has entered into an operating agreement as an enforceable condition of approval, which specifies capital and liquidity requirements and risk management expectations. By receiving a national trust bank charter, the digital bank will be allowed to expand its digital asset custody services nationally and may perform the functions and “activities of a fiduciary, agency, or custodial nature, in the manner authorized by federal and state law” with oversight being conducted by the OCC. According to the OCC, this approval “demonstrates that the national bank charters provided under the National Bank Act are broad and flexible enough to accommodate evolving approaches to financial services in the 21st century.”
On July 31, the OCC presented its first full-service national bank charter to a fintech company permitting the establishment of a new national bank. The new bank received conditional approval from the agency in 2018, as well as regulatory approval from both the FDIC and the Federal Reserve according to a press release issued by the company. According to the press release, the charter will allow the bank to offer FDIC-insured nationwide banking services, including traditional loan and deposit products, through mobile, online, and phone-based banking. The bank will be located in Utah but will have no branches, deposit-taking ATMs, or offices open to the public. Acting Comptroller of the Currency Brian P. Brooks issued a statement noting that the opening of the bank “represents the evolution of banking and a new generation of banks that are born from innovation and built on technology intended to empower consumers and businesses.”
Louisiana Office of Financial Institutions extends relief provided to state-chartered financial institutions
On July 24, the Louisiana Office of Financial Institutions issued an emergency declaration continuing relief previously provided to Louisiana-chartered financial institutions, as provided in an earlier declaration previously covered here. Among other things, the declaration extends parity granted to loans made under the Main Street Lending Program established by the Federal Reserve System and loans made under the Small Business Administration's Paycheck Protection Program. The declaration also extends relief relating to temporary branch office closures, relocations, reduced operations, and annual meetings.
On April 30, Louisiana’s Commissioner of Financial Institutions issued an emergency declaration extending several prior Covid-19 related measures until May 15 (previously covered here, here, and here). The extensions pertain to lending limits for the SBA’s PPP program, changes in branch operations, and annual meetings for state-chartered financial institutions.
On April 16, the New York State Department of Financial Services announced that it issued an order permitting state-chartered banks, credit unions, mutual savings and loan associations, and mutual savings banks to hold meetings virtually. These include stockholder, shareholder and accountholder meetings. The order also extends the timing requirement for annual stockholder meetings so that meetings may be held within seven months of the institution’s fiscal year end, instead of four months.
- Jeffrey P. Naimon to discuss “Section 1071: Small business data collection & fair lending” at the American Bar Association Consumer Financial Services Winter Meeting 2022
- Jonice Gray Tucker to discuss “Getting your company ready: Managing fair lending for IMBs” at the Mortgage Bankers Association Independent Mortgage Bankers Conference
- Lauren R. Randell to discuss “Significant legal developments in the Northeast” at the 37th Annual National Institute on White Collar Crime
- Jonice Gray Tucker to discuss “Small business & regulation: How fair lending has evolved & where it is heading?” at the Consumer Bankers Association Live program