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Banking Regulators in the USA Authorize the Holding of Stablecoins in Reserves

28 September 2020 14:52, UTC
Banking Regulators in the USA Authorize the Holding of Stablecoins in Reserves

22.09.2020  |   in Cryptocurrencies analysis
Stablecoins are advanced resources intended to copy the value of fiat monetary standards like the dollar or the euro. They permit clients to efficiently and quickly transfer value around the world while keeping up value stability, as Ethereum and Bitcoin are famous for their instability when valued against fiat. The issuers of stablecoins have been utilizing banks in the US for quite a long time yet in a hazy regulatory condition. Presently, federal banks are expected by the Office of the Comptroller of the Currency (OCC) to feel comfortable offering services to the users of stablecoin providers. A letter from the senior deputy clarified that while banks should direct due diligence and guarantee they evaluate the dangers of banking any stablecoin providers, stablecoins are getting progressively mainstream. That is why national reserves are permitted to hold stablecoin reserves.

Banking Stablecoin

According to acting the Acting Comptroller of the Currency Brian Brooks, the senior deputy of OCC, public banks, and government reserve funds associations presently take part in stablecoin related operations which involve billions of dollars every day. This view gives better administrative certainty to banks inside the federal banking network to provide a secure way for customer-service.

The OCC elaborated on how banks are supposed to deal with stablecoin reserves, especially those that are backed by fiat such as the dollar or euro. The letter from Comptroller does indicate that until further notice, this will apply only to those stablecoins backed 1:1 with other currencies, implying that tokens that rely on baskets of digital currencies like Libra are left out. The OCC has found a way to coordinate the crypto space with the current financial structure under Brian Brooks, who is the former counsel for Coinbase. As of late, the OCC has advised banks that they can offer services to new crypto companies and other fintech firms. As per the letter, stablecoin providers can indicate banks that hold their reserves, for their customers or the public to be sure of its safety.

Paul Clark, Seward & Kissel LLP, comments on the developments as the following:

“No new law was created by this release; however, the OCC seems to be using the guidance process to assure national banks that they can use their established powers in the crypto context just like they have in other areas. They want to be out front on the crypto issues so national banks do not appear to be behind state chartered banks, particularly in light of the aggressive moves by Wyoming; and the OCC may also highlight the advantages a national bank charter can provide as opposed to more limited state charters such as Wyoming’s SPDI charter.”
In March, as Brian Brooks, who was the legal counsel for Coinbase became the interim director of OCC, they have been very active in expanding cryptocurrency roles in the banking system. The OCC also sent out the same resolution approving federal banks keeping crypto assets in July.

SEC Response

27.08.2020  |   in Legislation
Also, the U.S Securities and Exchange Commission (SEC) indicated that certain stablecoins are not securities according to federal law, however, they are recommended to work with the legal counsel and agency to guarantee that they are approved as securities per federal law. As indicated by the announcement, the SEC is eager to distribute a no-action letter, that will assure participants that the regulator will not take action against the organization. This may indicate that the two regulators discussed this subject before the release of the OCC guidance.

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