Banks' Ability to Conduct Cryptocurrency Transactions Comes Under Senators' Fire


Letters issued by the Department of Treasury’s Office of the Comptroller of the Currency allow banks to engage in digital currency transactions that are considered financially sound.

Several senators are asking for a rescission and more comprehensive updates on the Office of the Comptroller of the Currency’s digital asset guidance, citing volatile market conditions and greater risk for financial institutions.

An independent office within the Treasury Department, the OCC oversees banking activity and ensures regulatory compliance. Acting Comptroller Michael Hsu was asked to limit cryptocurrency transactions within the banking system by Sens. Elizabeth Warren, D-Mass; Dick Durbin, D-Ill.; Bernie Sanders, I-Vt.; and Sheldon Whitehouse, D-RI.

“In light of recent turmoil in the crypto market, we are concerned that the OCC’s actions on crypto may have exposed the banking system to unnecessary risk, and ask that you withdraw existing interpretive letters that have permitted banks to engage in certain crypto-related activities,” the letter reads. 

Lawmakers specifically targeted a series of interpretive letters the OCC previously issued to banks that allowed them to engage in digital currency transactions––provided a bank can prove the transactions are financially sound. 

Letters 1170, 1172, 1174, and 1179 all permit banks to engage in cryptocurrency transactions in what lawmakers say is “unfettered” and “problematic” behavior. They reference the recent volatility in cryptocurrency markets, namely the fluctuating prices of digital coins, as the key reason warranting more careful oversight.

“We are concerned that the OCC has failed to properly address the shortcomings of the preceding interpretive letters and the risks associated with crypto-related banking activities, which have grown more severe in recent months.”

The senators ask for the withdrawal of the OCC’s letters regarding cryptocurrency transaction permissions followed by coordination with the Federal Deposit Insurance Corporation and Federal Reserve to implement a stronger consumer protection framework regarding cryptocurrencies. 

The letter also asks for a complete list of banks regulated by the OCC that are currency providing cryptocurrency deposit and holding services, total dollar amounts of cryptocurrency custodies currently deposited in participating banks, and other information surrounding digital currency transactions. 

A spokesperson for the OCC told Nextgov that while the OCC does not comment on congressional correspondences, Hsu has previously advocated for a strong, coordinated federal approach to prevent risks associated with cryptocurrency banking. 

“To the extent the OCC’s prior communications have been interpreted as tacit encouragement to engage in crypto activities, the forthcoming releases will clarify that safety and soundness is paramount,” he said in remarks before the Federal Reserve Bank of Philadelphia. 

The federal government has been increasingly keen on exploring regulations for the booming cryptocurrency market to prevent broad destabilization in the financial system. 

While regulation is typically met with pushback by industry players, some crypto firms welcome the oversight. Georgia Quinn, general counsel at the first OCC-approved crypto trading platform Anchorage Digital, said that more regulations ensure a safer digital currency industry. She also said that rescinding the OCC’s letters permitting cryptocurrency transactions would decentivize firms like Anchorage from seeking federal charters.

“Recent calls for the OCC to withdraw its crypto guidance for banks would result in fewer institutions seeking federal banking charters, and fewer consumer protections as a result,” she said in a statement. “If we truly want to protect consumers, we need to pave a workable path forward for regulated institutions to provide crypto services, which was the very intent of the OCC’s guidance.”