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Home Newsbytes

OCC’s Hsu: Crypto regs need ‘strong guardrails and gates’

October 11, 2022
Reading Time: 2 mins read

During a roundtable discussion today of cryptoassets and international financial systems, Acting Comptroller of the Currency Michael Hsu addressed the OCC’s continuing development of an appropriate regulatory framework for crypto. Many bankers, regulators and policymakers “don’t really understand or trust crypto as it exists today and that they see lots of risk,” Hsu said, but don’t want to get left behind or be perceived as anti-innovation.

Likewise, regulatory bodies should resist lowering standards when dealing with crypto, Hsu said, adding that regulators have to “learn and smartly adapt” to “ensure safety, soundness and fairness and encourage responsible innovation.” Regulators should have learned a lesson from attempts to regulate shadow banking 20 years ago. “Instead of shielding the regulated banking system from the risks of structured finance and shadow banking, the approach of pushing those risks outside of the bank regulatory perimeter ended up simply masking the problem,” he said. “We don’t want to repeat that mistake.”

Hsu said that while interagency collaboration is making strides toward supervisory pathways, the banking sector needs to develop “guardrails and gates,” identifying three areas that need clarity around supervisory expectations in the near term: liquidity risk management of deposits from cryptoasset companies, including stablecoin issuers; finder activities, especially related to crypto trade facilitation; and crypto custody.

“The more novel and riskier an activity, the tighter a bank’s limits and controls need to be to meet supervisory expectations,” he said. “Banks seeking to engage in crypto activities may want to carefully consider the scope of what they want to do, start with what can be most readily risk managed, and impose gates, through limits and other controls, to prevent uncontrolled expansion and growth into higher-risk activities. Banks interested in engaging in crypto will have to develop good brakes by fashioning strong guardrails and gates. Those able to do so will be positioned to grow and expand in the future.”

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