April 22, 2021 at 11:05PM

The American Bankers Association (ABA) said in testimony last week that it believes standards for cryptocurrency businesses should be strengthened.

In front of the House Subcommittee on Consumer Protection and Financial Institutions, the ABA said it strongly “supports and seeks to streamline de novo bank formation; supports and seeks to facilitate responsible bank innovation, including new technologies, partnerships and business models; and believes in charter choice.”

While the ABA said it supports new entrants (in the banking community) and new ways of reaching consumers, it does not believe that jurisdictions should create new charters or apply interpretations to traditional charters that are designed to pair bank-like benefits. This includes benefits such as federal preemption and access to critically shared infrastructure, such as the Federal Reserve payment system, with less regulation of consumer and systemic risks.

The ABA is focused on cryptocurrency models and action at the Office of the Comptroller of the Currency (OCC) where applications for traditional charters are being considered and granted for non-traditional business models, which presents risks to the payments system. The ABA further added that such new charters enable entities to seek bank charters without being subject to the same oversight and regulations as traditional banks.

“The two recently granted OCC trust charters to firms offering digital custody services were made possible by OCC Interpretive Letter 1176 (IL 1176) issued during the last week of the former acting comptroller’s tenure and two days before the charter applications were provisionally approved,” the ABA said in the testimony.

“IL 1176, drafted without any public comment or input, lowered the standard for eligibility for the OCC trust charter by denoting that any entity that meets a lower state charter requirement now, by default, is eligible for an OCC charter,” the ABA continued.

The ABA also pointed to the state of Wyoming, which has created a Special Purpose Depository Institution (SPDI) bank charter that allows entities to hold uninsured customer funds. The ABA said these SPDIs may be called banks, but they may not be subject to required supervision, under the Bank Holding Company Act (BHCA). They also will not have FDIC oversight and may create new opportunities for fraud or money laundering. In addition, since they take only uninsured money or no deposits at all, they will not be subject to the Community Reinvestment Act (CRA). SPDIs grant entities bank powers without the oversight.

In recent months, the OCC has had a mission to broaden the definition of entities eligible to apply for traditional charters, the ABA said. While this debate and the OCC’s purpose of chartering more broadly is pending legal action, this new approach would allow entities that previously would not have met OCC requirements for a charter to be considered and even approved for such a charter.

The ABA pointed to three things. First, the novel charters and application of traditional charters avoid the requirement of taking insured deposits, but allow them to avoid traditional bank regulations. Second, Congress and the OCC should conduct a review of OCC activities related to IL 1176, including the timing of its release and the decision to bypass the practice of formal notice and a comment period. Lastly, the OCC and states should not grant charters to banks that take deposits but are designed to avoid BHCA oversight.

A bill was passed Wednesday (April 21) by congress that would create a digital asset working group designed to promote collaboration between regulators and the private sector to encourage innovation,.

The bipartisan Eliminate Barriers to Innovation Act requires the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to set up the working group.

American Bankers Association Seeks More Oversight Of Cryptocurrency Entities …

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