New Chief of OCC Mulls an Interagency Policy Team on Cryptocurrency

The change in policy spells a brighter future for regulatory practice, marking a shift in how crypto will be treated by financial oversight regimes.

The Statement

Michael Hsu, the newly appointed acting Comptroller of the Currency (OCC), told a House Financial Services Committee in Washington DC on May 19th, 2021 the following: 

Prior to this meeting, Vice Chair Quarles, Chair McWilliams and I had talked about potentially putting together an interagency policy sprint team just on crypto because of exactly the concerns you’ve described.

The new chief of the OCC response was quoted by Coindesk. This is a watershed event that will mark a new dawn in the adoption of cryptocurrency through a regulated, consistent and compliant framework.  


How the Regulatory Landscape Will Soon Shape the Crypto Industry

In a recent response to the House Financial Services Committee hearing, Hsu gave the assurance that the regulators are moving towards addressing the concerns surrounding the crypto industry. However, this effort does not only revolve around the office of the Comptroller of the Currency (OCC) but also involves the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) to examine the cryptocurrency sector. 

The crypto industry has evolved beyond what was initially envisaged. Bitcoin and Ethereum, although widely described as cryptocurrency, do not play the role of ‘currency’ in a technical sense. In 2019, the chair of CFTC, Heath Tarbert confirmed that Ethereum and Bitcoin are classified as commodities. This classification is important because the regulatory regime that applies depends on classification status. 

This begs the question that if the two main crypto assets that most of us are accustomed to are classified as commodities, why wouldn’t the same classification apply to other crypto assets? In a nutshell, if the crypto asset has the characteristics of ‘currency’ it will come under the purview of the OCC and the Federal Reserve. If the crypto asset exhibits the characteristics of a ‘security’ then it comes under the purview of the SEC (Securities and Exchange Commission).

Definition of Currency 

Currency in simple terms means a legal tender. It is a unit of money that can be used as a medium of exchange. In other words, it is used for payment settlement between multiple parties. One cryptocurrency in particular fits this bill, which is the XRP token. Quoting from an article by Cointelegraph, XRP was described to be: 

XRP is a token used for representing the transfer of value across the Ripple Network. The main purpose of XRP is to be a mediator for other – both cryptocurrencies and fiat – exchanges.

In December, 2020 Ripple Labs was sued by the SEC and the pressing need for a proper classification became apparent. The SEC has since been seen fumbling in the said lawsuit – XRP must first be categorized as a security to bring the entire matter within its jurisdiction. Forbes in its article on the subject said the following: 

The historical moment adds urgency to resolving whether XRP is a currency or security, a question which financial innovation makes difficult, but also demonstrates the SEC’s abuse of its authority.

The lack of proper definition by the regulators is disconcerting. The crypto industry is hampered until the regulators put into place a clear, decisive and inclusive regulatory framework. 

OCC Can Now Change the Game

Michael Hsu’s statement is definitely a recognition of the roles that crypto assets play today. It is also a forward-looking one that makes implications as to future definition. There is a common saying that not all cryptos are created equal, and that saying is indeed true. Each crypto has its own utility and the governing framework has to accommodate the unique infrastructure associated with separate tokens. OCC is now spearheading this mammoth task by first recognizing the fragmented regulatory approach that is stifling digital innovation.     

What this meant for the players in the crypto space is assurance of growth and peace of mind. Investors can now put their money into crypto projects without fearing regulatory backlash as long as due diligence is carried out. This also marks a paradigm shift from the regulators. They have now realized that piecemeal classification will often result in embarrassing consequences. 

Institutional Adoption 

With a clear and forward-looking regulatory regime, the crypto industry looks primed for massive adoption. Institutions that have shied away from crypto assets can now proceed without the fear of regulators coming with their guns blazing. Many commentators predict that Ripple will emerge triumphant in the ongoing suit; but to be dragged into a legal battle, even a victory, is no compensation for the damage that has been inflicted by a suit that should not have taken place. 

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