US Federally regulated banks have been given the greenlight to conduct payments and other business activities using stablecoins, per statements from the US Office of the Comptroller (OCC).
This ground-breaking revelation from the banking regulator is providing much-needed clarity on the size and scope of stablecoins such as USD Tether and USD Coin by traditional banking conglomerates. It also places stablecoins and possibly various cyrptocurrencies at the same level as SWIFT.
Specifically, the interpretive letter addresses whether national banks and federal savings associations would be able to participate in independent node verification networks (INVNs, also known as blockchain networks) or use stablecoins. The letter said that these financial institutions can participate as nodes on a blockchain and store or validate payments.
Per the press release, banks that participate in an INVN must be aware of the operational, compliance and fraud risks when doing so.
Still, the OCC said INVNs “may be more resilient than other payment networks” due to the large number of nodes needed to verify transactions, which could limit tampering of transactions.
Executive director of the Blockchain Association, Kristin Smith, said on Twitter that “the letter states that blockchains have the same status as other global financial networks, such as SWIFT, ACH, and FedWire.”
The Acting Comptroller of the Currency, Brian Brook, said in a statement that while other countries have built real-time payment systems, the United States “has relied on” the private sector to build such technologies, apparently endorsing the use of stablecoins as an alternative to other real-time payment systems.
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Brooks has overseen the publication of two other interpretative letters and a number of other crypto-friendly moves during his time overseeing the agency, including a letter telling federal banks they can provide services to stablecoin issuers and store reserves for stablecoins.
Last month, Brooks announced his support of a letter by the President’s Working Group on Financial Markets that outlined how stablecoins should be regulated in the US.
President Trump has nominated Brooks twice to serve a full five-year term to head up the agency, including earlier this week. Still, due to US election turmoil, it remains to be seen whether the US Senate will schedule a confirmation vote on this ruling. At the time of writing, it seems unlikely that the Senate will pass anything until upcoming US President Joe Biden takes office on January 20th – though this too is not guaranteed.
Jack Dorsey contests controversial FinCEN ruling
Monday’s interpretive letter also comes on the same day as a public comment period for a proposed Financial Crime Enforcement Network (FinCEN) rule closes.
The highly controversial and contested rule only had a 15-day comment period, and proves to be unenforceable for stakeholders and businesses in the sector.
In fact, Square CEO Jack Dorsey didn’t hold back in criticising the FinCEN ruling, stating that it would ” actually have less visibility into the universe of cryptocurrency transactions than it has today.”
In a letter addressed to FinCEN, dated Jan 4th, Dorsey said, if the rules are approved, cryptocurrency customers maybe pushed to use unregulated services outside of the United States, creating more problems than it solves.
He wrote: “This creates unnecessary friction and perverse incentives for cryptocurrency customers to avoid regulated entities for cryptocurrency transactions, driving them to use non-custodial wallets or services outside the U.S. to transfer their assets more easily.”
Fortunately for cryptocurrency users, there are no shortage of cryptocurrency exchanges that operate under different regulations, and should this ruling pass then a cryptocurrency exodus to less penalising jurisdictions could ensue.
Either way, it appears that the US two-pronged approach is both endorsing stablecoin usage while also attempting to force exchanges to police their own users. The rushed nature of this also ruling raises suspicions as detailed feedback couldn’t be compiled in time for a prospectively out-going administration to square away.
Finally, Dorsey also said: “The burdensome information collection and reporting requirements deprive U.S. companies like Square of the chance to compete on a level playing field to enable cryptocurrency as a tool of economic empowerment.”
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