On November 18, 2021, the Chief Counsel of the Office of the Comptroller of the Currency (“OCC”) published Interpretative Letter #1179 to clarify the Digital Asset Letters (defined below) related to the permissibility of national banks and Federal savings associations (collectively, “Banks”) to engage in cryptocurrency, distributed ledger, and stablecoin activities. Interpretative Letter #1179 explained that the activities in the Digital Asset Letters are intrinsically within the business of banking, but a Bank must demonstrate that it has supervisory controls sufficient to ensure the activities are conducted in a safe and sound manner. The Chief Counsel in Interpretative Letter #1179 reminded Banks that “a proposed activity is not legally permissible if the bank lacks the capacity to conduct the activity in a safe and sound manner.” As such, the OCC expects a Bank to notify its supervisory office, in writing, before conducting the proposed activity and wait to receive affirmative written notification in order to proceed with the proposed activity.
Interpretative Letter #1179 outlines the process that a Bank pursuing digital asset activities must undertake to get approval from its supervisory office. In addition to the specific risks identified in the Digital Asset Letters, a Bank must:
- Demonstrate that it has established appropriate risk management and measurement processes for the proposed activities, including having adequate systems to identify, measure, monitor and control the risk related to the activities. The OCC highlighted operational, liquidity, strategic and compliance risks.
- Demonstrate, in writing, an understanding of its compliance obligations related to the specific activities that the Bank intends to conduct, including without limitation, any applicable requirements under the federal securities law, Bank Secrecy Act, Anti-Money Laundering Act, Commodities Exchange Act, and other consumer protection laws.
The OCC’s supervisory office and the Chief Counsel will review and evaluate the Bank’s specific proposal based on factors such as: (1) the adequacy of the Bank’s risk management and management information systems; (2) controls to enable the Bank to engage in the proposed activities in a safe and sound manner; (3) the Bank’s recognition of, and ability to comply with, laws that apply to the proposed activities; and (4) other supervisory considerations relevant to the Bank’s specific proposal. If the OCC grants approval of the activity, the OCC will review the activity as part of its on-going process .
The OCC’s flexible “business of banking” approach requires Banks to collaborate with the agency to review whether a proposed activity is permissible under existing agency regulation, guidance, and historical practice. It promotes innovation by embracing new methods of conducting core banking activities while ensuring satisfactory controls are in place to protect the financial system against collateral consequences and undue risk. Market participants who have a more contentious approach should take note.
 Chief Counsel’s Interpretation clarifying: (1) Authority of a Bank to Engage in Certain Cryptocurrency Activities; and (2) Authority of the OCC to Charter a National Trust Bank (November 18, 2021) (“Interpretative Letter #1179”). This Alert relates solely to digital assets and not the OCC’s chartering authority. [back]
 The “Digital Asset Letters” are OCC Interpretative Letter #1170 (concluding that Banks may provide cryptocurrency custody services); OCC Interpretative Letter #1172 (concluding that Banks may hold dollar deposits serving as reserve backing stablecoin in certain circumstances); and Interpretative Letter #1174 (addressing whether Banks may act as nodes on an independent node verification network to verify customer payments and engage in certain stablecoin activities to facilitate payment transaction on a distributed ledger). [back]
 Interpretative Letter #1179, p. 3. [back]
 Interpretative Letter #1179, p. 4. [back]
 Id. [back]