Feds Warn Banks Against Getting Into Cryptocurrency, Will Require Permission Slip Prior to Any Activity

The U.S. Office of the Comptroller of the Currency (OCC) on Tuesday announced it had warned financial institutions against getting involved with cryptocurrency, saying they should ask the feds for a statement of “non-objection” before taking any action.

Banks should not engage with cryptocurrencies without “written notification of the supervisory office’s non-objection,” the office said in an interpretive letter dated Nov. 15 but published on Tuesday. “In deciding whether to grant supervisory non-objection, the supervisory office will evaluate the adequacy of the bank’s risk management systems and controls, and risk measurement systems, to enable the bank to engage in the proposed activities in a safe and sound manner.”

Financial institutions have been increasingly undercut by companies and cryptocurrencies that use decentralized finance — or DeFi — offering traditional financial services at better rates. Companies such as BlockFi and Celsius have siphoned banking customers away with interest rates on traditional saving start at around 8 percent, 20 times higher than the “high-interest” savings accounts offered by American Express, while protocols including Compound and Aave enable users to take out loans with rates as low as 1 percent — using their cryptocurrency as collateral.

Despite skepticism from industry executives, including JPMorgan Chase CEO Jamie Dimon, who derided cryptocurrency as a “fraud” and who questioned last month whether the bitcoin supply was truly limited, banks have been moving to explore opportunities to capitalize on the sea change. Dimon’s bank introduced its own cryptocurrency, JPM Coin, in 2019, but scaled it back after regulators expressed concern.

Another executive, New York-based Quontic Bank CEO Steven Schnall, said in an interview with The New York Times that he was “surprised by the intensity of the questioning” he received from OCC lawyers when his bank sought to issue a debit card with rewards denominated in bitcoin, peppering him with questions that made it difficult to compete with DeFi providers: “What if Quontic customers lost their Bitcoins? What if the bank account holding them was owned by a trust and not an individual person? How would they be divided if someone died? The deliberations took two years, and at the end there was no clear green light.”

The agency’s Tuesday announcement did not offer concrete guidance, but emphasized that financial institutions should submit any plans for engaging with cryptocurrency to regulators before proceeding. The letter provided “a roadmap for banks to engage with their supervisory office to provide written notification of their proposed activities and outlines the criteria that the OCC will follow to evaluate the proposed activity and provide a supervisory non-objection,” the OCC said. “If the bank receives a supervisory non-objection, the OCC will review these activities as part of its ordinary supervisory processes.”

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