US Regulator Clears Path for Banks to Offer Riskless Crypto Trading

Guidance issued December 9 by the US Office of the Comptroller of the Currency (OCC) has clarified that national banks in the US can offer customers riskless principal crypto transactions. It marks the latest regulatory step by the Trump administration to bring crypto more in line with TradFi regulation.

“Riskless principal crypto-asset transactions, as described above, are permissible under

12 U.S.C. § 24(Seventh),” the regulator wrote in its letter, officially titled Interpretive Letter 1188, while adding that “different facts and circumstances could result in a different conclusion.”

“Several applicants have discussed how conducting riskless principal crypto-asset transactions would benefit their proposed bank’s customers and business, including by offering additional services in a growing market,” the regulator wrote. 

This suggests there’s pent-up demand from US banks to offer these services.

In riskless principal transactions, banks act as intermediaries — essentially brokers — purchasing assets from one party to be immediately resold to another party, the ultimate purchaser, and holding none of the assets themselves. 

These transactions are described as riskless because, prior to buying any assets, the bank locks in an offsetting transaction from the ultimate buyer. So in practice, a bank’s buying and selling of the assets in these transactions are executed virtually simultaneously, minimising its risk exposure.

Riskless principal transactions have long been commonplace for banks in more traditional asset classes such as securities. The new guidance confirms that, as far as the OCC is concerned, banks are allowed to handle crypto trades between customers in the same way, potentially opening up crypto trading to a new class of investors not comfortable using centralised crypto exchanges or DeFi.

The guidance distinguished between riskless principal transactions involving digital assets classed as securities, which it says are “clearly permissible” for the same reasons they’re permissible with traditional securities (essentially because they’re very low-risk, as the name suggests) — and those involving non-security digital assets, which it deemed potentially more complicated but ultimately permitted.

The regulator determined that the risks posed by crypto transactions settled on distributed ledgers and traditional securities settled on more traditional systems are similar.

Although settling a transaction on a distributed ledger differs from settling a security transaction via book entry, the two processes are analogous in many respects.

US Office of the Comptroller of the Currency (OCC)

The regulator also noted that allowing banks to facilitate crypto trading would provide several important benefits to customers and banks themselves. 

“Customers would be able to transact crypto-assets through a regulated bank, as compared to non-regulated or less regulated options…national banks may also be better positioned to manage any risks related to such interactions than their customers.”

“Moreover, offering this service would also benefit the bank’s business by making the bank a

more attractive option for current and future customers.”

Related: CFTC Approval Pushes Spot Crypto Into America’s Regulated Trading Arena

Guidance Potentially Signals Greenlight for Banks to Go Full-Crypto

The new guidance has been interpreted by many in the crypto community as giving banks the green light to fully embrace digital assets, potentially marking the beginning of a new crypto-driven banking revolution.

Posting on X / Twitter, crypto media outlet CryptosR_Us said that the new guidance “removes a massive gray area that has scared banks away for years,” adding that “the merger of TradFi and crypto just hit warp speed.”

Communities built around cryptocurrencies closely linked to the banking industry, like Ripple’s XRP, have had particularly bullish reactions to the news, assuming beloved coins will benefit more than others. Crypto market analyst and XRP supporter Amonyx kept it succinct in his reaction, saying “US bank regulator says banks can act as crypto intermediaries. Bullish #XRP.”

The guidance comes after the Comptroller of the Currency, Jonathan V. Gould, last week testified on the OCC’s activities before the Committee on Financial Services of the U.S. House of Representatives.

Gould’s comments outlined his efforts to further integrate crypto, particularly stablecoins, with traditional financial institutions and the US economy more broadly. Gould also took aim at ’Operation Chokepoint 2.0,’ the Biden administration’s alleged efforts to ‘debank’ certain individuals and businesses for political reasons — a policy that is claimed to have hit the crypto industry and the Trump family particularly hard.

Related: US Regulators Greenlight Banks to Hold Crypto for Paying Network Fees

On December 9, the same day the new banking guidance was released, Gould posted more criticism of the Biden administration’s banking policies to his professional X / Twitter account.

“The “Chokepoint 2.0” report confirmed what we suspected. Americans deserve fair, apolitical access to the financial system, which we are working to ensure at the OCC.”

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