US Banking Regulator Suggests Federal Licensing Framework for Crypto Firms

A key bank regulator in the U.S. may be open to allowing crypto companies to be licensed as financial institutions on a national, rather than state-by-state, level.

Brian Brooks, chief operating officer of the U.S. Office of the Comptroller of the Currency (OCC), the nation's national bank overseer, said Monday he believes crypto companies could fall under a federal licensing regime – if they provide what can be described as payment services.

Speaking at CoinDesk's Consensus: Distributed virtual conference, the former Coinbase chief legal officer said many crypto companies are payments companies, and it therefore might make sense to treat these startups – and other fintech firms like Stripe – the same way as banks are treated federally.

"Crypto is one of those areas where we have to ask ourselves, does it make more sense to think of crypto projects as local projects or global projects. If they're global, then the rational for a single national license makes more sense," he said. "Increasingly, it looks a lot like crypto is banking for the 21st century."

This would give these startups an alternative to the state-level money transmitter licenses when building operations.

He pointed to stablecoins, some tokens and remittances as examples of where crypto startups might look more like banking services.

The charter is different from the OCC's fintech charter in that it doesn't just apply to lending.

The fintech charter is based on the idea that banks took deposits, made loans and were involved in payments, but some institutions might provide only one or two of these services. These institutions can still be treated as banks under the OCC's fintech charter.

"I come back to the idea of things that are inherently borderless, like crypto, probably makes sense as a licensed structure," he said.

Too big to bank?

Brooks also addressed the issues some crypto startups have tapping banking services, saying any company that is compliant with applicable laws should be able to tap these services.

"As crypto matures, there are increasingly many companies that have perfectly robust risk management systems and do have an ability to comply with those laws, and they shouldn't have trouble finding bank relationships," he said. "Again, one of my messages in my new role is going to be to remind my colleagues at the OCC that banks not only have the ability, they have an obligation to serve all lawful businesses. They shouldn't be discriminating because something's a new technology."

More provocatively, he suggested that crypto startups can potentially even replace the existing banking infrastructure, though he stopped short of saying that outright.

"There are technologies that exist that can decentralize and reduce the single points of failure that our economy is mostly built on," he said. "If you think back to the lessons of the financial crisis, it's that there are a small number of financial crisis, it's that there are a small number of institutions in our society that are really so big and so connected with so many people's lives that in the words of 2008, they were thought to be 'too big to fail.'"

Decentralizing the risk could, if not outright replace this issue, at least help provide some solutions, he said. Banks would have to learn from crypto startups as they continue operations.

"I think that crypto is going to feed the banking system and change our view of what the bank charter is about," he said.