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FinTech Nostradamus

Feb. 24, 2021

Brian Brooks' Last Dance

By Richard B. Levin, Dowse Bradwell "Brad" Rustin, IV, Craig Nazzaro

So let’s dance this last dance.[1]  On Jan. 4, 2021, the Office of the Comptroller of the Currency (“OCC”) published a Chief Counsel’s Interpretative Letter (the “Letter”) ‎confirming the authority of national banks’ and federal savings associations’ to participate in independent ‎node verification networks (“INVN”) (distributed ledger technology), and use stablecoin cryptocurrency to conduct payment activities and other bank permissible functions.[2]‎  Building on its 2020 Letter regarding banks providing custory services for crypto assets,[3] the Letter concludes a national bank or federal savings association may validate, store, and record ‎payments transactions by serving as a node on an INVN. A bank may use INVNs and related ‎stablecoins to carry out other permissible payment activities. This was a final act or last dance by outgoing Acting Comptroller of the Currency Brian Brooks to support the maturation of the FinTech industry prior to any changes occurring within the Treasury agencies.[4]

In the press release (the “Release”) accompanying the Letter, the OCC noted the benefits of blockchain technology to ‎the banking system:

Engaging in INVN within the federal banking system may enhance ‎the efficiency, effectiveness, and stability of payments activities and achieve the benefits of real-time ‎payments already enjoyed in other countries.

The Release continued to characterize use of these new ‎technologies as “more resilient than other payment networks” and a more verifiable system than many ‎used by banks today.  Acting Comptroller Brooks stated: 

Our letter removes any legal ‎uncertainty about the authority of banks to connect to blockchains as validator nodes and thereby ‎transact stablecoin payments on behalf of customers who are increasingly demanding the speed, ‎efficiency, interoperability, and low cost associated with these products.

The OCC cautioned banks of potential risks when conducting INVN-related activities, ‎including operational risks, compliance risk, and fraud. The OCC expressed confidence that banks ‎have sufficient experience with managing technology risks inherent in these new activities derived ‎from similar electronic activities expressly permitted for banks, “including providing electronic custody ‎services, acting as a digital certification authority, and providing data processing services.” 

The use of stablecoins by national banks to effect payments is one step away from authorizing the creation of stablecoins by individual banks. It appears that in his last dance, Brooks left the FinTech industry with a last chance for traditional banks to fall in love with digital assets – not disco.

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[1] The authors pay homage to Donna Summers’ disco ballad, Last Dance, and not the ESPN documentary on Michael Jordan. While Acting Comptroller Brooks had a dramatic impact on the regulation of digital assets during his tenure, comparing him or anyone to MJ would be a stretch.

[2] Federally Chartered Banks and Thrifts May Participate in Independent Node Verification Networks and Use Stablecoins for Payment Activities, IL-1174 (Jan. 4, 2021), available at: https://www.occ.treas.gov/news-issuances/news-releases/2021/nr-occ-2021-2.html.

[3] Federally Chartered Banks and Thrifts May Provide Custody Services For Crypto Assets, IL-1170 (July 22, 2020), available at https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-98.html.   

[4] Treasury Secretary nominee Janet Yellen, “I will just say outright I am not a fan….  I know there are hundreds of cryptocurrencies and maybe something is coming down the line that is more appealing….  [V]ery few transactions are actually handled by bitcoin, and many of those do take place on bitcoin are illegal, illicit transactions.”   

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