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US Regulators Give Green Light to Stablecoins

PAR002_123 • Nov 20, 2020

The Office of the Comptroller of the Currency has given federally chartered banks the green light to hold "reserves" on behalf of Stablecoin Issuers

SEC OCC Global Stablecoins Symbol
Statements released by both the Office of the Comptroller of the Currency (OCC) and the U.S securities and Exchange Commission (SEC) provide the first detailed national guidance on how cryptocurrencies backed by fiat currencies should be treated under law stating that U.S. banks can now lawfully hold the fiat currency reserves of companies that issue Stablecoins. 


OCC

Federally Chartered Banks and Thrifts May Engage in Certain Stablecoin Activities 

Stablecoins refer to cryptocurrency backed by an asset such as a fiat currency, including U.S. dollars or other foreign currency.
OCC Emblem

https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-125.html



"National banks and federal savings associations currently engage in stablecoin-related activities involving billions of dollars each day," Acting Comptroller of the Currency Brian P. Brooks said. "This opinion provides greater regulatory certainty for banks within the federal banking system to provide those client services in a safe and sound manner."



SEC


FinHub Staff Statement on OCC Interpretation 


"The Securities and Exchange Commission Strategic Hub for Innovation and Financial Technology Staff (FinHub Staff) issues this statement on an interpretation published by the Office of the Comptroller of the Currency (OCC Interpretation) addressing the authority of national banks and federal savings associations to hold stablecoin reserves. The OCC has limited its Interpretation to holding reserves of a stablecoin associated with hosted wallets that is backed by a single fiat currency and redeemable by the holder of the stablecoin on a 1:1 basis for the underlying fiat currency upon submission of a redemption request to the issuer."



SEC Securities and Exchange Commission Emblem on White Background

https://www.sec.gov/news/public-statement/sec-finhub-statement-occ-interpretation



OCC Response


The OCC letter specifically refers to Stablecoins that represent a U.S. dollar 1:1 and specifies that the OCC’s guidance only refers to Stablecoins held in hosted wallets, meaning wallets controlled by a trusted third party. Unhosted wallets, which are controlled by the individual user who owns the cryptos being stored, are not included in Monday’s announcement.



OCC Brian Brooks Portrait Picture in Front of US Flag



Acting Comptroller of the Currency, Brian Brooks said in the letter;


“Stablecoins refer to cryptocurrency backed by an asset such as a fiat currency, including U.S. dollars or other foreign currency,”



Brooks who is Coinbase’s former general, Brooks said Stablecoin issuers can point to the fact that regulated banks hold their reserves to convince the general public that they are safe.


“National banks and federal savings associations currently engage in Stablecoin related activities involving billions of dollars each day. This opinion provides greater regulatory certainty for banks within the federal banking system to provide those client services in a safe and sound manner,”



SEC Response


In an announcement of its own, the U.S. Securities and Exchange Commission (SEC) cited the OCC Chief’s letter and stated that certain stablecoins were not securities under federal law and advised stablecoin issuers to work with the SEC to ensure the same.


According to the new announcement, the SEC was ready to provide a “no-action” letter, to stablecoin issuers to ensure the firms do not invoke federal law enforcement action. The SEC said in the announcement,



"Whether a stablecoin is a security under the federal securities laws is inherently a facts and circumstances determination. This determination requires a careful analysis of the nature of the instrument, including the rights it purports to convey, and how it is offered and sold."



Centre Consortium CEO


Jeremy Allaire, the CEO and Chairman of Circle who is an issuer of the USD Coin (USDC) alongside crypto giant Coinbase confirmed that the letters will provide legal cover for tech and finance companies.



Circle CEO Jeremy Allaire in Front of Blue Background

Jeremy Allaire commented,


“Today’s newly issued guidance and commentary from the US Treasury’s Office of the Comptroller of the Currency (OCC) represents significant progress for the advancement of digital dollar stablecoins in the US financial system.” Allaire also noted that, “As an issuer the guidance validates the approach we have taken in building a resilient, powerful and open standard for the use of digital dollars on the internet.”


The Centre CEO confirmed there has been a significant surge in demand,


“I can’t speak on behalf of other Stablecoins but at CENTRE we’ve seen really robust demand from significant banking institutions to get involved in reserve banking Stablecoin clients,”


Jeremy concluded,


'We are really just at the start of the broader transformation that Stablecoins and blockchains will bring to the financial system, with more fundamental innovation made possible by the programmability of digital dollars and smart contracts opening up significant changes in how markets, capital, payments and commerce will function in the decade ahead. Regulatory guardrails combined with open, interoperable and industry standards are set to help the United States and the US dollar to continue its leadership role in the world economic system."




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Congress Emblem

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US Congress Stablecoins Bill

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Financial Stability Board Global Stablecoins GSC

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Bank of England Stablecoins

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