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On January 4, the OCC published an interpretive letter addressing the legal permissibility of certain payment-related activities involving the use of new technologies, including using independent node verification networks (INVN) and related stablecoins to conduct payment activities and other bank-permissible functions. Specifically, the letter clarifies that a national bank or federal savings association “may validate, store, and record payments transactions by serving as a node on an INVN,” and may also “use INVNs and related stablecoins to carry out other permissible payment activities” provided the bank or federal savings association complies with applicable laws and safe, sound, and fair banking practices. Due to the decentralized nature of INVNs—which not only “allows a comparatively large number of nodes to verify transactions in a trusted manner” but also “limits tampering or adding inaccurate information to the database because information is only added to the network after consensus is reached among the nodes validating the information”—the OCC believes that INVNs may enhance payment activities’ efficiency, effectiveness, and stability within the federal banking system. The letter also outlines potential risks associated with INVN-related activities, such as operational and compliance risks and fraud related to the possibility of money laundering and terrorist financing, and warns banks and federal savings associations to expand their programs to ensure compliance with Bank Secrecy Act reporting and recordkeeping requirements and to address cryptocurrency transaction risks.
On October 13, the Financial Stability Board (FSB) published a report providing high-level recommendations for the regulation, supervision, and oversight of “global stablecoin” (GSC) arrangements. FSB defines “stablecoins” as a “specific category of crypto-assets which have the potential to enhance the efficiency of the provision of financial services, but may also generate risks to financial stability, particularly if they are adopted at a significant scale.” GSCs are those with multi-jurisdictional reach that “could become systemically important in and across one or many jurisdictions, including as a means of making payments.” The report, Regulation, Supervision, and Oversight of “Global Stablecoin” Arrangements, follows an analysis of financial stability risks raised by GSCs as well as a survey of FSB and non-FSB members’ approaches to stablecoins. Prior to issuing the report, FSB also conducted several outreach meetings with representatives from regulated financial institutions, fintech firms, academia, and the legal field. The October report, which takes into account public feedback received earlier in the year, outlines 10 high-level recommendations that “call for regulation, supervision and oversight that is proportionate to the risks, and stress the value of flexible, efficient, inclusive, and multi-sectoral cross-border cooperation, coordination, and information sharing arrangements among authorities that take into account the evolving nature of GSC arrangements and the risks they may pose over time.” However, the report stresses that because these recommendations primarily address financial stability risks, issues such as anti-money laundering/combating the financing of terrorism, data privacy, cyber security consumer and investor protection, and competition are not covered. These issues, which may present consequences for financial stability if not properly addressed, should be incorporated as part of a comprehensive supervisory, regulatory, and oversight framework, the report states.
Among other things, the report also provides regulatory authorities a guide “of relevant international standards and potential tools to address vulnerabilities arising from GSC activities,” and outlines a timeline of actions that will build a roadmap to ensure “any relevant international standard-setting work is completed.”