OCC Comptroller Hsu Emphasizes Importance of "Inclusion" in Crypto-Regulatory Framework

OCC Comptroller Michael J. Hsu highlighted the importance of "inclusion" in the development of a regulatory framework for crypto activities.

In the Alliance for Innovative Regulation Barefoot Innovation Podcast interview, Mr. Hsu emphasized that in developing a regulatory framework for crypto and crypto-related activities, regulators and policymakers should question what they want the system to look like and what key values should drive the crypto markets. He said that "some communities are drawn to crypto because they feel that the traditional [banking] system hasn't served them well." He argued that inclusion "deserves a lot of discussion" in crypto policy debates, though there remain questions about how to make it part of the system "as a feature, not as kind of an extra."

Comptroller Hsu also weighed in on the ongoing debates over stablecoins and central bank digital currency ("CBDC"). He said that any policy on stablecoins should ensure that the public is sufficiently protected, and that the dollar "is the base currency in whatever future blockchain-based economy there may be." He identified three "architectural" issues regarding the structure of stablecoin regulation: (i) the way in which stablecoins should be made stable; (ii) the degree to which stablecoins should be made interoperable (i.e., fungible) and (iii) the degree to which stablecoins should be separated from the traditional banking system. He discussed the various regulatory approaches - through disclosure or through a prudential banking supervision - and raised the likelihood that new legislative authority would be necessary to address the full range of concerns posed by stablecoins. Comptroller Hsu also highlighted the importance of interagency coordination for crypto regulation, not only at the federal level, but also between the federal and state regulators, to ensure that gaps in the regulatory framework are appropriately addressed.

Regarding CBDC, Comptroller Hsu emphasized the importance of interoperability noting that (i) at present, no stablecoins, or coins generally, are interoperable and (ii) in a "large, diverse blockchain based economy . . . we want [stablecoins] to be interoperable with each other and with the CBDC." Comptroller Hsu argued that interoperability "would ensure, or would help ensure, that the dollar is kind of the base currency for trade and payments . . . in a blockchain native world."