Banking Regulator OCC Allows U.S. Banks to Hold Reserve Funds for Stablecoins

The U.S. Office of the Comptroller of the Currency (OCC) released new guidance on Monday, September 21, that allows all federally regulated banks to hold reserve funds for all stablecoin operators.

The OCC along with the Securities and Exchange Commission (SEC) published the stablecoin guidance providing a detailed overview of how the fiat-backed stablecoins should be treated under the law.

While making the announcement, the Acting Comptroller of the Currency Brian P. Brooks said: "National banks and federal savings associations currently engage in stablecoin-related activities involving billions of dollars each day. This opinion provides greater regulatory certainty for banks within the federal banking system to provide those client services in a safe and sound manner.”

Another interpretive letter issued by the OCC mentions that these measures will bring reassurance and confidence among all participants and will help to establish a clean and conducive environment for banks to work with crypto firms.

So far, there were no clear regulatory instructions about the functioning of stablecoins. These measures will make banks more comfortable in offering their services. Note that while talking about offering reserve funds, the OCC has specifically mentioned that the banks can do so “in situations where there is a hosted wallet”.

It further goes to add that "[w]e are not presently addressing the authority to support stablecoin transactions involving un-hosted wallets. In addition, this letter only addresses the use of stablecoin backed on a 1:1 basis by a single fiat currency where the bank verifies at least daily that reserve account balances are always equal to or greater than the number of the issuer’s outstanding stablecoins”.

It further goes to add that the banks should conduct all due diligence and make sure to assess all the involved risks before entering the agreement with a stablecoin issuer. Besides, the stablecoins operators will also have to strictly adhere to Know-Your-Customer (KYC) regulations and anti-money laundering rules.

In a staff statement issued by the SEC’s FinHub unit, the securities regulator wrote: "whether a particular digital asset, including a so-called "stablecoin," is a security under the federal securities laws is inherently a facts and circumstances determination. This determination requires a careful analysis of the nature of the instrument, including the rights it purports to convey, and how it is offered and sold”.

Extending its support, the SEC also noted: “The Staff stands ready to engage with market participants to assist them and to consider providing, if appropriate, a ‘no-action’ position regarding whether activities with respect to a specific digital asset may invoke the application of the federal securities laws”.