BitOoda Regulatory Analysis, 2/4/21: Recent OCC approvals represent huge step forward, while early political developments from the new administration are mixed
Since our last regulatory piece (apologies for the hiatus!), we have seen a new administration take the helm in Washington DC, preceded by a number of last-minute regulatory actions by the outgoing administration. We have also seen a few indications of the Biden administration’s posture toward digital assets, though it remains too early to confidently assess the strategic direction — if any — the new leadership team will take on crypto. The real question we want to tackle today is what the impact might be of some of these developments.
To provide a bottom-line-up-front assessment, we believe that the remarkable clarity and forward-looking approvals from the OCC since mid-2020 — including a series of interpretive letters and its approval of a national trust charter that made Anchorage the first federally chartered digital asset bank — will significantly reshape the landscape by putting in place a critical part of a digital financial services infrastructure into which mainstream financial institutions can integrate.
· The OCC announced on January 13 its approval of Anchorage Digital Bank, National Association, stating “The Anchorage 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 January 4, the OCC published its view that national banks can run blockchain nodes and use stablecoins for payments. This followed its announcement in September 2020 that national banks can hold stablecoin reserves for customers, and its letter in July 2020 ruling that national banks can custody crypto assets.
We assess the Anchorage approval and the OCC’s policy rulings represent a massive step forward in merging — and making interoperable — traditional economic activity and blockchain-based digital financial services. The development of banks’ authorities and capabilities to bridge legacy capital markets and blockchain-based commerce opens the door for widespread adoption and shifts the regulatory risk calculus for institutional participants in the space. Anchorage’s ability, for example, to provide sub-custody services for financial institutions will exponentially increase the number of bank clients with access to digital assets, and its designation as a Qualified Custodian provides institutions with the regulatory certainty they have been seeking.
To quickly summarize other digital asset developments on the political scene:
· Janet Yellen offered some of her first public comments in her new Treasury role, noting the need for the U.S. to combat the use of cryptocurrency for illicit financing. While her comments could portend a position relatively consistent with that of her predecessor (Steve Mnuchin), we remain in wait-and-see mode in terms of the broad posture of the Treasury Department (which includes FinCEN, OFAC, OCC, and IRS) toward digital assets.
· Gary Gensler’s confirmation as the new SEC Chair would put in place a leader with deep crypto expertise, having served as an MIT professor and Special Advisor to the MIT Digital Currency Initiative. Gensler also has previously decried the absence of a coherent policy framework for digital assets and blockchain writ large.
· Heath Tarbert resigned as CFTC Chair only to announce he would be remaining with the agency as a Commissioner. We view this as positive for the CFTC’s continued advocacy of effective principles-based digital asset policy, in cooperation with other federal regulators.
· FinCEN — after receiving thousands of letters and objections from industry representatives, including the Association for Digital Asset Markets (ADAM) — extended the comment period for its controversial proposal to establish new recordkeeping and reporting requirements for banks and MSBs engaging in transactions with unhosted/self-hosted wallets. Given the widespread opposition to the proposed rule and the last-minute nature of its introduction, we welcome the decision for the new administration to conduct a more thoughtful look at this issue.
We encourage our clients to reach out to us at email@example.com to discuss opportunities presented by the evolving digital asset financial services infrastructure and how BitOoda can help bridge the gap between the digital economy and traditional capital markets.