US national banks are now allowed to trade cryptocurrencies on behalf of their clients, according to a formal statement from the U.S. Office of the Comptroller of the Currency (OCC).
An interpretation letter published on Wednesday claims that this is a major step toward regulatory certainty for conventional financial institutions venturing into the digital asset market.
Because of the OCC’s ruling, banks can now trade cryptocurrency for their customers directly as well as contract with outside service providers to handle related tasks, including custody and trade execution.
However, this flexibility is accompanied by a strong focus on appropriate risk management procedures.
Banks Must Establish Robust Controls to Manage Legal, Operational, and Security Risks in Digital Asset Custody
Banks must put in place the proper controls and make sure they fully comprehend the operational, legal, and security risks associated with handling digital assets.
The action is a part of a larger trend in which regulatory agencies are offering more transparent frameworks to connect the cryptocurrency and traditional finance markets.
Additionally, it indicates that cryptocurrency is becoming more widely accepted in the American financial system, which might lead to more institutional and retail access to digital assets through regulated banking channels.
The OCC hopes to promote innovation without jeopardizing consumer protection or financial stability by permitting banks to incorporate cryptocurrency services while still exercising supervision. The adoption of cryptocurrency by the general public may be greatly accelerated by this decision.
Also Read: Federal Reserve Governor Waller Backs Stablecoins, Promotes Its Banks & Non-Banks Usage
Federal Reserve Reverses 2022 Crypto Guidance, Easing Restrictions on Banks’ Digital Asset Activities
The Federal Reserve recently retracted its 2022 guidance, which had prohibited banks from engaging in cryptocurrency and stablecoin activities without prior notice, marking a dramatic change in regulation.
The Federal Deposit Insurance Corporation (FDIC) of the United States also reversed its previous instructions, stating that supervised banks are now able to participate in legally allowed cryptocurrency activities without requiring prior authorization.
These modifications are part of a larger initiative by US regulators to make things more transparent, cut down on bureaucracy, and improve the climate for safe cryptocurrency use in the conventional banking system.
Banks Must Handle Crypto Holdings Responsibly and Legally, Says Regulator
Banks that hold crypto-assets, either directly or through a sub-custodian, are required to act responsibly and in complete accordance with all relevant laws and regulations.
This entails protecting customer assets, upholding operational security, and putting in place robust risk management procedures. Regulators emphasize that crypto custody needs to meet the same safety and soundness requirements as conventional financial services.
As a result, banks need to evaluate counterparty risk, guarantee data integrity, and keep an appropriate eye on any third-party service providers.
In the end, banks are responsible for protecting digital assets and maintaining compliance in all facets of their operations about cryptocurrency.
Also Read: Federal Reserve Chair Says “Banks Are Perfectly Able to Serve Crypto Customers”; But Advices Caution