Take aways from Interpretation of US OCC on Holding Stable coin Reserves
Stablecoin is a kind of STO cryptocurrency that has a stable value as compared to other investment tokens, which frequently display volatility. Stablecoins can augment payments on a broad scale with the increasing demand. The US OCC in its public interpretation on NBFSAA to hold stable coin reserves has indicated many key pointers limited to the use of stablecoin supported on a 1:1 supported by a one fiat currency:
1. The issuer should hold sufficient assets supporting the stablecoin in case of a hosted wallet. The bank should daily verify reserve account balances are more than the issuer’s outstanding.
2. Banks offering Stablecoin services should fulfill each applicable laws and regulations including the Bank Secrecy Act (BSA) and anti-money laundering and conduct sufficient due diligence corresponding with the risks of agreement with stablecoin issuer.
3. Stablecoins may be supported by fiat, commodity, or another STO in crypto. The interpretation considers fiat-backed stable-coins with hosted wallets to be redeemable for the underlying fiat by the holder. Stablecoin reserves should be stored by the legal authority of national banks on part of customers.
4. National banks can offer crypto businesses while tackling the inherent risks. Banks can hold deposits from issuers, including deposits for stablecoin reserves linked with hosted wallets, and conduct incidental activities to obtaining deposits from stablecoin issuers.
5. Bank or FSA have to specify accurate and proper disclosures concerning deposit insurance coverage. All bank activities should be fabricated and executed with sound risk management in line with banks’ overall business. A competent risk management course should be ascertained bybank management for new activities by effectively identifying, calculating and monitoring the contingent risks.
6. Bank can make contractual agreements in regards to the asset holdings in the reserve account by stipulating the respective responsibilities and steps to ensure the liable party to be deemed the issuer or obligor of the stablecoin. Liquidity risk and compliance risk should be taken into account prior to making any agreement with a stablecoin issuer.
You can read the interpretation letter here: https://www.occ.treas.gov/topics/charters-and-licensing/interpretations-and-actions/2020/int1172.pdf
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