On 21 September, the Office of the Comptroller of Currency (OCC) and Securities and Exchange Commission (SEC) partnered to release a stablecoin guideline. Consequently, the direction provided detailed national guidance on how fiat-backed cryptocurrencies will work under the law.
Prior, there has never been any federal clarity around stablecoins, with their issuers using the U.S. banks for years under unclear regulatory environment. The OCC wants federally regulated banks to feel comfortable providing services to stablecoin users.
Rising Stablecoins Popularity
According to an interpretative letter signed by Jonathan Gould, while banks should conduct due diligence and assess risks of banking any stablecoin issuers, stablecoins are becoming more popular.
Brian Brooks, the acting comptroller of the currency, stated that national banks and federal savings associations engage in stablecoin-related activities that involve up to billions of dollars daily. Furthermore, he noted that this opinion would provide greater regulatory certainty for banks within the federal banking system; thus, provide client services in a safe, sound manner.
In March, Jeremy Allaire, CEO of CENTRE member circle, stated that USDC issuers have to onboard with reserve banks, with each member holding an account at these banks. He said that he could not speak on behalf of other stablecoins. Still, they noted the increased demand from significant banking institutions to get involved in reserve banking stablecoin clients at CENTRE.
Banking Stablecoins Details
The OCC provided details on how banks should handle stablecoin reserves, clearly referring to stablecoins backed by the dollar. It took some steps to integrate the crypto space with the existing financial system under Brooks. Previously, the OCC told banks they can provide services to crypto startups and floated a national payment charter for exchanges and fintech firms.
The letter states that stablecoin issuers can air that regulated banks hold their reserves, assuring the general public of security. It also specifies that OCC’s guidance only refers to stablecoins stored in wallets controlled by a trusted third party. Monday’s publication excludes individual users owning cryptos held in non-hosted wallets.
Sec stated that certain stablecoins might not be securities under federal law. Nonetheless, it advised issuers to work with the agency and legal counsel to ensure this is the case. The Monday statement appears to only apply to fiat-backed stablecoins and not algorithmic ones.
Basis was a stablecoin startup that raised $133 million in 2018. Unfortunately, it shut down that December after its lawyers concluded that U.S. law would treat its token’s specific mechanism as securities.
On Monday, the SEC recommends that issuers contact FinHub, its fintech wing, to ensure projects remain in compliance.