OCC Confirms Limited Authority for Banks to Hold Crypto-Assets as Principal
Commentary by Tim Byrne
The Office of the Comptroller of the Currency ("OCC") "confirmed" that national banks may hold limited amounts of crypto-assets as principal to support certain operational needs.
In an interpretive letter, the OCC said that its decision rests on longstanding precedent permitting national banks to engage in activities that are "incidental to the business of banking" under the National Bank Act. The OCC noted that these activities are "convenient or useful" to the business of banking. The OCC drew parallels to longstanding practices such as holding foreign currency or maintaining access to traditional payment systems. The agency emphasized that the authority is narrow and tied directly to enabling banks to conduct otherwise permissible activities—such as custody, payments, or platform testing—that require interaction with blockchain networks.
The OCC also identified circumstances under which a national bank may hold crypto-assets on its balance sheet: (i) to pay network or transaction fees associated with blockchain-based services, a function the OCC described as operationally necessary and less risky than relying on third-party intermediaries; and (ii) to test crypto-asset platforms, whether developed internally or acquired from a vendor, in order to validate controls, ensure compliance, and safely deploy new services. The OCC explained that requiring banks to outsource testing would introduce additional risks and potentially discourage adequate evaluation of new technologies.
The OCC outlined several conditions on this authority, including: (i) that banks conduct these activities in a safe and sound manner; (ii) that holdings remain de minimis and limited to amounts reasonably necessary for anticipated operational needs; and (iii) that banks maintain robust risk-management practices addressing technology and cybersecurity, operational and liquidity risk, illicit finance, and third-party oversight. The agency noted that these activities will remain subject to ongoing supervisory review.
Commentary
The OCC’s interpretive letter is another step in expanding the regulatory authority of banks to engage in crypto-related activities. Although the OCC’s current view is that the activities described in the letter are incidental to the business of banking (rather than a part of the business of banking), the OCC can be expected to continue to expand the authority that national banks have to engage in crypto activities.
The OCC’s action is also relevant to state banks for two reasons. First, as a matter of federal law, FDIC-insured state banks are generally prohibited from engaging as principal in activities prohibited to national banks (without special approval). Second, many states have "wild card" statutes or regulations that permit state banks to engage in activities permissible for a national bank even if state law does not otherwise include a specific authorization for the activity. The terms of state wild card regimes vary, and sometimes state regulatory approval is required even if there is wild card authority. Even absent a wild card statute, the OCC’s action could help establish an industry standard that may prompt state regulators to issue parallel guidance. As a result, the OCC’s interpretive letter should be an important precedent for state as well as national banks.