On June 3, 2020, the Office of the Comptroller of the Currency (OCC) published an advance notice of proposed rulemaking (ANPR) to solicit public input on the “digital activities” of banks and the impact of emerging technologies on the banking industry. Among other technologies, the ANPR includes questions focused on distributed ledgers, cryptocurrencies and cryptoassets. The OCC, which is an independent bureau of the U.S. Department of the Treasury that regulates and supervises all national banks and federal savings associations, may use public comments received in response to the ANPR to inform its rulemaking activities – an opportunity for the blockchain industry to potentially influence regulations. The OCC’s recent hiring of its new Acting Comptroller of the Currency, Brian Brooks, who was formerly the Chief Legal Officer at a major digital currency exchange, could signal increased attention of the OCC to the future of blockchain technology and cryptocurrency in banking.
Banks, regulators, companies and other organizations that are involved in money transfers or deposits, trading and hedging or the use of digital assets should carefully consider this ANPR, as the ANPR will likely lead to regulations that directly impact their respective businesses. Generally, anyone submitting comments should suggest changes in regulations to appropriately address the new considerations that the deployment blockchain technology in banking raise and identify regulations that would undesirably stifle technological developments or inadequately protect participants.
The subject matter of the ANPR can be broadly categorized into two groups – questions about future regulations and questions about current regulations.
Regarding future regulations, the OCC seeks to understand technological advancements in areas related to banking, with a goal of better meeting customers’ evolving needs and ensuring that regulations “continue to evolve with developments in the industry.” Some questions that the ANPR invites comments on are geared towards the OCC gaining deeper insight into how the public uses new technologies. For example, one question asks what type of “cryptocurrencies or cryptoassets” an individual is engaged with as well as what distributed ledger technology the individual is using in, or believes could be used in, banking activities. Other questions encourage the public to conceptualize future regulations in light of digital activities. For example, the ANPR invites comments on crypto-related activities that “should be addressed in regulatory guidance.”
Aside from future regulations, the OCC is also evaluating current regulations to determine if they are sufficiently “flexible and clear” or “create unnecessary hurdles” to technological advances in banking. For example, the public will be able to comment on the assessment the OCC uses to determine whether an activity is “convenient or useful,” the threshold test that the OCC employs to determine whether a national bank’s investment activity is sufficiently necessary to the business of banking that it falls within banks’ incidental powers. (Under the current regulations, an activity is convenient and useful if it improves the efficiency, production, or delivery of the bank’s products or services and increases capacity for other bank activities – a broad definition.) Technological advances relevant to various areas of regulations promulgated by the OCC, such as advances in the areas of cryptomining and “layer 2 protocols” may, for example, draw public comments on areas of regulation such as the sale of excess electronic capacity and data processing.
Any potential revisions must satisfy three OCC principles. Any regulation adopted: (1) needs to be technology-neutral so that products, services, and processes can evolve regardless of the enabling technology; (2) should facilitate appropriate levels of consumer protection and privacy; and (3) should be principle-based rather than prescriptive, to manage evolving risks and guard against regulations quickly becoming outdated.
Any comments submitted in response to the ANPR are due by August 3, 2020 and may be used by the OCC to propose revisions or additions to the OCC’s rules. Public input will improve the ability of the OCC to tailor its rulemaking to the needs of different stakeholders and develop a more coherent set of regulations that is in line with technological developments.
Since 2000, the OCC has solicited public comments to calibrate the regulation of national banks’ digital activities. In the rapidly evolving areas of blockchain technology and cryptocurrency, where new implementations, applications and variations are continuously being developed and deployed, the ANPR provides a timely opportunity for the OCC to obtain a more thorough understanding of which changes in regulations may be desirable in continuing to further its mission of fostering the safe, sound and fair operation of national banks and federal savings associations.