OCC Rescinds Required Supervisory "Non-Objection" Preclearance for Permissible Crypto-Related Activities

The OCC has reiterated that certain crypto-related activities—crypto-asset custody, distributed ledger, and stablecoin activities—previously determined to be permissible remain so. The OCC has also rescinded a Biden-era preclearance process under which banks were expected to obtain the OCC's supervisory non-objection before engaging in these permissible activities. The general consensus is that the process practically precluded banks from engaging in these activities.

The change is effective immediately and applies to all national banks—including, national trust banks—and federal savings associations (generally, "banks").

Key Takeaways

The lifting of the preclearance process and the OCC clarification:

• Facilitates crypto-related activities. It reduces the burden on banks to engage in certain crypto-related activities. These activities have been determined, through well-reasoned OCC analyses, to be permissible activities grounded in traditional bank powers.
• Tech-neutral. Seeks to consistently supervise bank activities, regardless of the underlying technology. This is consistent with, for instance, the 2020 OCC regulatory reforms that moved away from awkward distinctions for specific "electronic" activities (compared to non-electronic bank activities today?).
• Charter/structure considerations. The OCC's liberalization does not alter similar frameworks developed by the FDIC and Federal Reserve during the Biden Administration. We expect harmonization among the regulators (for instance, the acting FDIC chair has called for "adopt[ing] a more open-minded approach to innovation and technology adoption, including … a more transparent approach to … digital assets and tokenization.") But until that happens, there may be some uncertainty or unequal treatment, for instance:
  • Federal branches. Federal branches of foreign banks generally enjoy similar rights and privileges as national banks, except as otherwise provided by the International Banking Act (IBA), other federal laws or regulations, or as determined by the OCC. Because the Federal Reserve must also approve the establishment of OCC-licensed federal branches, to the extent that the Federal Reserve maintains a similar preclearance process, federal branches may face more barriers than national banks. The Federal Reserve also maintains a novel supervision program that provides additional scrutiny. By contrast, the OCC has clarified that crypto-related activities will be part of its regular supervision, like any other permissible activity.
  • State-chartered banks. While some state bank powers look to national bank powers to maintain parity and competition, state-chartered banks are supervised at the federal level by either the Federal Reserve or the FDIC. Until these agencies rescind their preclearance frameworks, state-chartered banks will not benefit from similar clarity for crypto-related activities.
• High standards. The OCC explained that the same general risk management for traditional bank activities applies to support novel bank activities, including permissible crypto-related activities. This is an opportunity for banks interested in engaging in crypto-related activities and the crypto industry in general to establish a strong safety track record. Developing a more modern financial system with novel technologies in a safe and sound manner is to everyone's benefit. A crypto crisis or similar instability could usher in a very different regulatory approach, including one that is even more limiting than under the Biden Administration.
• Timing. While we anticipated this development in light of the Trump Administration's pro-crypto priorities, it is notable that the OCC made this change under acting Comptroller Rodney Hood. Former OCC Chief Counsel Jonathan Gould, who is nominated to be the next Comptroller, authored the 2020 interpretive letters that found the crypto-related activities to be permissible. He was expected to make similar moves upon his confirmation. The OCC's movement on this issue ahead of his arrival is a strong signal to industry that the OCC is open for business on crypto-related activities. Banks looking to engage in these activities and fintechs and others interested in obtaining OCC charters to engage in these activities now have a clearer path.

What the OCC Did

The OCC issued new Interpretive Letter 1183, which clarifies that crypto-related activities that were previously determined in other interpretive letters to be permissible remain permissible.

The new letter also rescinds Interpretive Letter 1179 which kept the previous interpretive letters but imposed a supervisory-non objection process. The OCC rescinded the preclearance requirement on the grounds that the OCC has gained enough supervisory experience, and the preclearance process is no longer needed. That helps frame the change as grounded in a well-developed OCC policy. It is not yet publicly clear, however, how much the OCC learned from the exercise. The counterpart FDIC pause letters suggest it was more of a gating exercise; the OCC never released similar letters (nor has the Federal Reserve). But it's still a positive development.

Those looking to engage in permissible crypto-related activities—whether they are national banks—including national trust banks—federal branches of foreign banks, or state banks authorized by so-called wildcard statutes, should look to the following OCC interpretive letters, unhindered by any need to first seek a supervisory non-objection:

• IL 1170 on crypto-asset custody services
• IL 1172 on stablecoin activities
• IL 1174 on participation in independent node verification networks

In addition to rescinding its Interpretive Letter 1179, the OCC also withdrew its participation in the interagency Joint Statement on Crypto-asset Risks to Banking Organizations and the Joint Statement on Liquidity Risks to Banking Organizations Resulting from Crypto-asset Market Vulnerabilities. We expect that the FDIC will follow suit. The Federal Reserve may withdraw as well but could take a more cautious approach through its novel supervision program generally.

We note that these joint statements (together with the preclearance process) sought to address perceived risks from stablecoins, among other crypto-related activities. Treasury Secretary Bessent's comments at the recent White House Crypto Summit underscored his view that stablecoins will help assure the U.S. dollar's continued dominance in global trade—a marked policy shift.

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Should you need additional analysis or guidance in connection with planning how to respond to or navigate these changes, the DWT financial services team is prepared to assist.

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