Background: the Business of the Comptroller of the Currency (OCC) claimed on 4th January that federally regulated financial institutions can use stablecoins to carry out payments and other actions. Upon these types of a big news which would probably rock the crypto market, Jennifer Jiang, the Main Tactic Officer of LatticeX Basis has prepared this commentary article.
SINGAPORE, Jan. 14, 2021 /PRNewswire/ — Amidst the substantially heated world discussion of electronic currencies suitable at the beginning of 2021, the Place of work of the Comptroller of Forex (OCC) introduced ahead an interpretive letter (# 1174), like the tunes using ears in the Blockchain innovation current market significantly in surprise.
The letter is generally heralded as the efforts in clarifying road guidelines from the U.S. regulatory agency for the software of impressive crypto systems, paving the way forward for the national banks and the Federal Reserve Associations to use the new impressive technologies, which includes the Independent Node Verification Network (INVN) and stablecoins to far better provider the at any time-demanding payment wants from the real financial system.
In a nutshell, the letter tells:
1) Financial institutions can act as nodes of the blockchain (INVN), problem stable coins, exchange steady coins for legal tender, and validate, keep and report payment transactions.
2) Financial institutions can use stablecoins to aid shopper payment transactions.
The new rules open up the possibility for banking institutions to use INVN and stablecoins to transfer cash more quickly involving monetary establishments without having government intermediaries. This gave banks the eco-friendly light to use the “always on-line” functionality of the compliant blockchain networks.
What Does This Necessarily mean, Exactly?
The sector is fired up about the OCC’s interpretive letters, simply because OCC has always been regarded as a somewhat conservative establishment and often been criticized for lagging guiding in supporting the development of money innovation engineering. In opposition to this historic track record, OCC’s hottest letter just outlines a prudential regulatory agency framework, displaying that the govt really understands that the cryptocurrency community is the basis of the next-era payment system, and is acting cautiously and promptly. It can be always encouraging to see significant regulatory agency in keeping up with altering instances and buyer demands.
In truth, if we consider a move again and evaluate the landscape in a stretch timeline, OCC has of course taken a fairly systemic solution on the practice of cryptocurrency and electronic assets for banking institutions and financial institutions beneath its supervision. Due to the fact July 2020, OCC has published a collection of guidelines:
The first interpretive letter 1170 published in July 2020 clarified the lawful basis for the bank to present buyers with cryptocurrency custody solutions, particularly close to personal important custody.
The next interpretive letter 1172 issued in September 2020 even more elaborated on the authority of financial institutions to maintain and handle stablecoin reserves.
This is the 3rd interpretive letter 1174, which is generally comprehended by the industry as breakthrough cryptocurrency steering for the long run of banking companies and payments.
It is value mentioning that in December 2020, the chief economist of OCC also released a paper named “Depicting the Upcoming of Fintech”, which focused on the regulatory tips for stablecoins. It is pointed out that stablecoins need to be bundled in the concurrent supervision framework, stablecoin issuers have to “out of the shadow” and would benefit from obtaining the Nationwide Lender Constitution.
This shows that OCC’s acknowledging the electricity of leveraging blockchain networks and permissible stablecoins in forming the new payment infrastructure. This opens up new business enterprise possibilities for engineering innovators to present more quickly 24-hour serious-time payment features that at this time lacks less than the present framework.
The Impression and Chances
Whilst OCC’s letter gave the inexperienced mild that financial institutions might use the “generally-on” purpose of community blockchains, it really is crystal clear neither general public blockchains nor stablecoins will change the regular economical payment rail, somewhat, this is a critical to start with stage in legitimizing the exploration of public blockchain as an different infrastructure that banking institutions may possibly freely undertake.
As pointed out in the OCC clarification letter, “About time, banks’ fiscal intermediation pursuits have produced and tailored to switching economic circumstances and consumer wants.
Financial institutions have adopted new technologies to have out actions permitted by banking institutions, such as payment actions. The at any time-rising desire in the sector absolutely illustrates the improvements in the economy’s monetary needs, which are realized quicker by applying disintermediation systems (this sort of as INVN) to verify and file economical transactions (which includes stable forex transactions). A lot more effective payment.”
We also observed that the letter emphasized that when financial institutions ought to develop and preserve the working procedures that comply with the Financial institution Secrecy Act (BSA) and anti-income laundering (AML).
Banking companies want to make comprehensive use of the knowledge of BSA/AML to accurately deal with the distinctive threats affiliated with cryptocurrency transactions. As constantly, the complexity of the items and products and services available will have to be commensurate with the degree of sophistication in threat administration and deemed suitable for the strategic approach of organization growth.
Clearly, basic safety and robust privacy preservation are the top concerns when it arrives to deal with innovation and new payment devices. The use of INVN, digital property, cryptocurrencies and other blockchain systems are just new usually means to enrich and empower the demands of financial functions in digital transformation.
The abilities in private computing will come to be the core competitiveness of future-technology fiscal establishments in giving this kind of electronic economic providers.
It really is thrilling to see the foreseeable future unfold.