As federal regulation remains patchy, firms may want to consider a New York state charter as a potential avenue to expand digital asset offerings in a compliant manner.
By Arthur S. Long, Barrie VanBrackle, Stephen P. Wink, and Deric Behar
On March 22, 2024, WisdomTree, Inc., a global asset management firm, announced that the New York Department of Financial Services (NYDFS) granted a New York limited purpose trust company charter to its subsidiary WisdomTree Digital Trust Company
A recent bipartisan bill, if enacted, would particularly benefit small lenders and bank-fintech partnerships by promoting transparency, appellate rights, and examiner accountability.
By Arthur S. Long, Parag Patel, Barrie VanBrackle, Pia Naib, and Deric Behar
On December 14, 2023, a bipartisan group of senators introduced the Fair Audits and Inspections for Regulators’ Exams Act (FAIR Exams Act), which seeks to increase transparency in the bank examination process. The proposed legislation would require examining agencies to act quickly and transparently, while creating an independent review and appeals process under the Federal Financial Institutions Examination Council (FFIEC),[1] which would allow banks to seek independent review of material examiner findings.
The OCC outlines safety and soundness principles and appropriate risk management processes for its regulated institutions that engage in BNPL lending.
By Arthur S. Long, Parag Patel, Barrie VanBrackle, Becky Critchley, Deric Behar, and Charlotte Collins
On December 6, 2023, the Office of the Comptroller of the Currency (OCC) issued Bulletin 2023-37 (Guidance), which clarifies the OCC’s policy positions on the risk management of “Buy Now, Pay Later” (BNPL) lending. These consumer lending arrangements (also known as “point-of-sale installment loans” or “pay-in-4”) involve short-term installment loans repayable in four or fewer payments and carry no finance or interest charges. The OCC expects that banks engaged in BNPL lending “do so within a risk management system that is commensurate with associated risks.”
The Guidance applies to all OCC-regulated institutions, including national banks, federal savings associations, covered savings associations, and federal branches and agencies of foreign banking organizations. The OCC also highlighted that the Guidance applies to community banks engaging in (or considering engaging in) BNPL lending.
A new program addresses innovative banking activities such as bank-fintech partnerships and digital assets while reinforcing guardrails around stablecoin activity.
By Arthur S. Long, Parag Patel, Pia Naib, Ja Hyeon Park, and Deric Behar
On August 8, 2023, the Board of Governors of the Federal Reserve System (FRB) issued guidance to the banking organizations that it oversees regarding its supervision of novel activities. The guidance also provides information on the process that state banks can follow to engage in certain stablecoin activities.
The guidance outlines principles and key considerations for banking organizations as they navigate risks associated with third parties, including fintechs.
By Arthur S. Long, Parag Patel, Barrie VanBrackle, Pia Naib, Ja Hyeon Park, Victor Razon, and Deric Behar
On June 6, 2023, the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System (FRB), and the Office of the Comptroller of the Currency (OCC) issued final supervisory guidelines for banking organizations on managing risks associated with third-party relationships (Joint Guidance). The Joint Guidance replaces existing individual agency guidelines, and harmonizes the principles- and risk-based approach of the three agencies concerning risk management of third-party relationships.
Although the Joint Guidance applies to all banking organizations that the agencies supervise, it does not create any new legal obligations or offer prescriptive requirements. It does, however, provide important considerations for banking organizations and the third parties with which they engage, and will help banks develop tailored approaches to third-party risk management.
Custodia Bank was denied Federal Reserve membership, while certain crypto principal activities are deemed presumptively not appropriate for member banks.
By Arthur S. Long, Pia Naib, and Deric Behar
On January 27, 2023, the Board of Governors of the Federal Reserve System (Federal Reserve) took two actions, clarifying that it considers many cryptocurrency activities to be inconsistent with the business of banking. First, the Federal Reserve announced that it had denied the application of Custodia Bank, Inc. (Custodia)
Banking organizations should ensure appropriate risk management, but regulators are skeptical of certain crypto activities as principal.
By Arthur S. Long, Pia Naib, and Deric Behar
On January 3, 2023, the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (collectively, the agencies) issued a concise joint statement on crypto-asset risks to banking organizations.
Relatedly, on January 7, 2023, Mark Van
The Federal Reserve is taking measured steps to better understand the types of cryptoasset-related activities contemplated by its supervised banking organizations.
By Alan W. Avery, Pia Naib, and Deric Behar
On August 16, 2022, the Board of Governors of the Federal Reserve System (FRB) issued a Supervision and Regulation Letter outlining its expectations for FRB-supervised banking organizations engaged in cryptoasset-related activities (SR Letter 22-6). This follows the publication of a financial institution letter issued by the Federal Deposit
Regulators once again offered piecemeal guidance, while focusing on risks and enforcement. Meanwhile, innovation and institutional adoption took off.
By Stephen P. Wink, Todd Beauchamp, Yvette D. Valdez, Eric S. Volkman, Adam Bruce Fovent, and Deric Behar
Last year, Latham & Watkins sounded a hopeful note that 2020 would provide a clearer vision than 2019 for the regulation of digital assets in the US. In the wake of the emergence of COVID-19, priorities changed, along with forecasts and expectations. The second and third quarters of 2020 had regulators of all stripes in triage mode, and any attention they may have directed at cryptoassets was understandably shelved. On the other hand, far from sidelining digital asset growth, the pandemic appears to have spurred further innovation and adoption. Regulators are now continuing to reckon with an asset class that remains without a comprehensive regulatory framework in the US.
The OCC greenlights bank custody of cryptoassets, opening a significant door to mainstream adoption and innovation.
By Alan W. Avery, Todd Beauchamp, Yvette D. Valdez, Pia Naib, Loyal T. Horsley, Charles Weinstein, and Deric Behar
On July 22, 2020, the US Office of the Comptroller of the Currency (OCC) issued Interpretive Letter #1170 (the Letter), giving national banks and federal savings associations (FSAs) the greenlight to provide customers with custody services for cryptocurrencies and digital assets that are not broadly used as currencies (collectively, cryptoassets). The Letter, addressed to an unspecified recipient bank seeking to offer cryptoasset custody services as part of its existing custody business, noted that the opinion applies to national banks and FSAs of all sizes.