On March 7, 2025, the Office of the Comptroller of the Currency (OCC) issued Interpretive Letter 1183, a significant regulatory announcement that rescinds the OCC's earlier Interpretive Letter 1179, which had imposed a supervisory non-objection requirement for such activities. The OCC's decision marks a pivotal shift toward fostering innovation within the banking sector, particularly concerning digital assets.
The OCC's Evolving Stance on Crypto
The OCC's engagement with crypto-asset activities evolved during President Donald Trump's first term through a series of interpretive letters, each addressing specific facets of digital asset involvement by banks:
- Interpretive Letter 1170 (July 2020): Authorized national banks to provide crypto-asset custody services, including the holding of unique cryptographic keys, recognizing these services as modern extensions of traditional custodial functions.
- Interpretive Letter 1172 (September 2020): Permitted banks to hold deposits serving as reserves for stablecoins backed on a 1:1 basis by a single fiat currency, aligning with banks' existing authority to receive deposits.
- Interpretive Letter 1174 (January 2021): Confirmed that banks could utilize distributed ledger technology and stablecoins to facilitate payment activities, including acting as nodes on independent node verification networks.
However, after these letters were issued (the last just weeks before the end of President Trump's first term), the OCC's tone changed during the Biden administration. Most significantly, the OCC issued an important interpretive letter that had the effect of putting the brakes on crypto-asset innovation in banks supervised by the OCC.
Interpretive Letter 1179, issued in November 2021, introduced a supervisory non-objection process. This required banks to obtain written "non-objection" from the OCC before engaging in the activities outlined in the previous letters. "Non-objection" is a term of art that preserved the OCC's ability to later deny that it approved any crypto-asset program to which it had "non-objected".
This non-objection requirement was perceived as a regulatory hurdle, potentially stifling innovation due to the risk-averse approach of OCC attorneys. The professional incentives for OCC attorneys appeared to discourage the issuance of non-objection to novel crypto-asset programs that could lead to unforeseen impacts on consumers.
In short, issuing a non-objection to a program that harmed consumers appeared much more likely to negatively impact an employee's professional advancement in the OCC than issuing a non-objection to a program that helped consumers was likely to improve such an employee's professional prospects. To the extent that OCC attorneys understood their incentives in this manner, this tended to create a one-way ratchet against innovation.
The Impact of Interpretive Letter 1183
The rescission of Interpretive Letter 1179 through Interpretive Letter 1183 is designed to "reduce burden, encourage responsible innovation, and enhance transparency," ensuring that bank activities are treated consistently, irrespective of the underlying technology.
By eliminating the supervisory non-objection requirement for activities using crypto-asset technology, the OCC is attempting to alleviate the regulatory burden that previously impeded banks from engaging in crypto-asset activities.
This regulatory change potentially creates a differing standard from that used by other federal banking regulators. Neither the Federal Deposit Insurance Corporation (FDIC) nor the Board of Governors of the Federal Reserve System (Federal Reserve Board) has modified or withdrawn their existing guidance on crypto-asset activities.
Consequently, banks under the jurisdiction of these regulators may still be subject to prior notification requirements, potentially placing them at a competitive disadvantage compared to OCC-regulated institutions.
Such disparity, which can be even greater when one considers the differing positions of state regulators, underscores the need for a harmonized regulatory approach to ensure a level playing field across the banking sector.
Driving Innovation with a New Regulatory Outlook
The OCC's proactive stance aligns with broader efforts by the Trump Administration to foster innovation in the crypto-asset sector. Notably, Trump's Jan. 23, 2025, Executive Order set forth crypto-asset policy objectives and established a working group tasked with recommending regulatory changes.
Additionally, the Securities and Exchange Commission's repeal of Staff Accounting Bulletin No. 121 removed significant challenges for regulated financial institutions seeking to provide custody or other services involving crypto assets.
Perhaps more telling for banks was the FDIC's decision in February to release documents related to its historical crypto-asset supervision practices.
This reflects a growing openness on the part of bank regulators to revisit regulatory frameworks in light of technological advancements. It also echoes some of the same criticisms articulated above concerning how bank regulators resisted bank innovation involving cryptocurrency or blockchain technology.
In the words of the FDIC's Acting Chairman Travis Hill, "banks were almost universally met with resistance, ranging from repeated requests for further information, to multi-month periods of silence as institutions waited for responses, to directives from supervisors to pause, suspend, or refrain from expanding all crypto- or blockchain-related activity."
The message this sent to banks was "that it would be extraordinarily difficult—if not impossible—to move forward. As a result, the vast majority of banks simply stopped trying."
Embracing Crypto While Upholding Compliance
While Interpretive Letter 1183 removes the supervisory non-objection requirement, it emphasizes that banks "must conduct all crypto-asset activities in a safe, sound, and fair manner and in compliance with applicable law."
Similarly, any new crypto-asset activities "should be developed and implemented consistent with sound risk management practices and align with banks' overall business plans and strategies." Moreover, the OCC will continue to examine such crypto-asset activities as part of its ongoing supervisory process, ensuring that banks adhere to legal standards.
Harmonizing Regulations for a Digital Banking Future
Interpretive Letter 1183 doesn't just adjust the regulatory compass—it signals the OCC's commitment to championing responsible crypto innovation. By dismantling previous barriers, the OCC empowers banks to explore digital assets confidently.
However, with some other regulators maintaining a cautious stance, especially at the state level, the financial industry faces a pivotal moment. Harmonizing these divergent approaches is essential to ensure that innovation thrives without compromising the financial system's stability and integrity.
This article first appeared in the March 26, 2025 edition of the "New York Law Journal" © 2025 ALM Global Properties, LLC. All rights reserved.
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