Federally regulated banks and savings associations can use stablecoins to conduct payments and other activities, the US’s Office of the Comptroller of the Currency (OCC) has said.
The OCC, an independent bureau within the Treasury Department, has published an ‘interpretive letter’ that addresses the legality of certain payment-related activities that involve the use of new technologies including stablecoins and what it refers to as independent node verification networks (INVNs) ‘to engage in and facilitate’ payments.
Stablecoins peg their value to assets such as fiat currencies or commodity prices, while an INVN – for example, a distributed ledger or blockchain – consists of a shared electronic database where copies of the same information are stored on multiple computers.
The OCC’s 10-page letter notes that billions of dollars’ worth of stablecoin trade globally, and demand for stablecoin continues to grow. It says that banks ‘may validate, store and record payments transactions by serving as a node on an INVN’ and that ‘a bank may use INVNs and related stablecoins to carry out other permissible payment activities’. It emphasises that a bank must conduct these activities consistent with applicable law and ‘safe and sound’ banking practices.
OCC: benefits and risks
The letter goes on to summarise what the OCC sees as the benefits and risks of stablecoins and INVNs. Examples cited of the benefits include they may be more resilient than other payment networks because of the decentralised nature of INVNs; examples of the downsides include potential increased fraud and compliance risks.
“Investors are pleased to see positive regulatory news allowing stablecoin and public blockchain integration into the traditional banking sector,” Justin Yashouafar, managing partner at California-based Blockhead Capital, told crypto and blockchain news site Coindesk.
The OCC’s letter was signed by the OCC’s senior deputy comptroller and chief counsel, Jonathan Gould.
In a media release accompanying the letter, acting comptroller of the currency, Brian Brooks, said: “While governments in other countries have built real-time payments systems, the US has relied on our innovation sector to deliver real-time payments technologies. Some of those technologies are built and managed by bank consortia and some are based on independent node verification networks such as blockchains.”
Brooks went on to reference a statement on stablecoins published in the run-up to Christmas by the President’s Working Group on Financial Markets.
“The President’s Working Group on Financial Markets recently articulated a strong framework for ushering in an era of stablecoin-based financial infrastructure, identifying important risks while allowing those risks to be managed in a technology-agnostic way,” Brooks said. “Our letter removes any legal uncertainty about the authority of banks to connect to blockchains as validator nodes and thereby transact stablecoin payments on behalf of customers who are increasingly demanding the speed, efficiency, interoperability and low cost associated with these products.”
Hailey Lennon, a legal consultant to cryptocurrency and fintech companies, described the content of the OCC’s letter as “innovative and exciting” in an article on Forbes.com. “Not because it is a huge pivot from how banks have traditionally functioned but because the OCC is doing a notable job keeping up with the changing technology and landscape,” she wrote.