Shalini Nagarajan

The US Office of the Comptroller of the Currency (OCC) has established a new fintech office to adapt to technological evolutions in banking, including crypto assets.



The Treasury said the office will add to its knowledge of digital assets, fintech partnerships and other emerging technology models that have an impact on OCC-supervised banks. It will also contribute to oversight of partnerships between traditional institutions and fintech firms.



Prashant Bhardwaj, who has worked in several roles across the financial sector for 30 years, has been appointed the new fintech office&#8217;s deputy comptroller and chief financial technology officer. His tenure begins April 10.



“To ensure that the federal banking system is safe, sound, and fair today and well into the future, we need to have a deep understanding of financial technology and the financial technology landscape,” Michael Hsu, acting comptroller of the currency, said in a <a href="https://www.occ.treas.gov/news-issuances/news-releases/2023/nr-occ-2023-31.html" target="_blank" rel="noreferrer noopener">statement</a>.&nbsp;



The OCC is a department under the Treasury in charge of executing laws relevant to national banks. Some of its powers include supervisory actions against banks, removal of bank directors and rejecting applications for new bank branches.



Hsu has previously urged the crypto industry to introduce stablecoin standards in the same vein as the World Wide Web Consortium and Internet Engineering Task Force’s approaches to guiding internet development.



In December, the OCC reiterated its stance on taking a <a href="https://blockworks.co/news/us-treasury-occ-crypto-problem" target="_blank" rel="noreferrer noopener">cautious approach</a> to crypto, pointing to various events that roiled digital asset markets in 2022.&nbsp;



One year earlier, Hsu had issued a reminder to federal savings associations and national banks to not participate in “certain cryptocurrency, distributed ledger, and stablecoin activities” without a non-objection notice from their regulatory supervisors.



“The events of this year in the crypto industry have revealed a high degree of interconnectedness between certain crypto participants through a variety of opaque lending and investing arrangements,” the agency said in a semi-annual Risk Perspective report.



Just before his recent retirement, Senator Pat Toomey pushed legislation that would see the OCC <a href="https://blockworks.co/news/lame-duck-senator-leaves-stablecoin-bill-legacy" target="_blank" rel="noreferrer noopener">gain direct oversight</a> of stablecoin issuers by way of a specialized licensing charter.



The agency was among three powerful US financial regulators to express skepticism over financial institutions holding crypto assets in January. Along with the Federal Reserve and the Federal Deposit Insurance Corporation, the OCC <a href="https://www.fdic.gov/news/press-releases/2023/pr23002a.pdf">warned</a> that risks associated with crypto should not spill over into the banking system.&nbsp;



“Based on the agencies’ current understanding and experience to date, the agencies believe that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices,” the agency said.



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Fresh OCC ‘Fintech Office’ Tasked With Keeping Up With Crypto

Casey Wagner

US financial regulators joined forces again this week to make sure banks got the message: They need to take risks associated with crypto seriously.



But so far, no new requirements have been issued.&nbsp;



Firms have been put on notice that careful risk assessments need to happen, but the latest statement is in no way creating new policies, the Federal Reserve, Federal Deposit Insurance Company (FDIC) and the Office of the Comptroller of the Currency (OCC) said.&nbsp;



The new statement, issued Thursday, is intended to “remind banking organizations to apply existing risk management principles” when it comes to crypto-related activities.



Banks should consider “concentration and interconnectedness” across deposits and potential liquidity risks. Firms are also advised to complete “robust due diligence and ongoing monitoring” of all crypto activity.



Thursday’s statement is an update to the warning issued <a href="https://blockworks.co/news/crypto-poses-key-risks-to-banks-but-carry-on">by the same three groups in January</a>. The agencies are primarily concerned with volatility and liquidity risks on exchanges and with stablecoin reserves, the new <a href="https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20230223a1.pdf" target="_blank" rel="noreferrer noopener">statement</a> added, and banks need to take the proper precautions. 



Regulators said banks should not lend deposits made by crypto customers and should hold cash to back all deposits.



“One read of the follow-up is that it’s positive insofar that the regulators specifically clarify they aren’t banning banks from banking crypto,” Galaxy Digital analysts wrote in a note Friday. “This could be seen as slightly softening their prior guidance and genuinely providing a bit more clarity.”



On the other hand, the statement could simply be preemptive of future policy, analysts added. It’s no secret <a href="https://blockworks.co/news/senate-banking-hearing-on-crypto-crash">Congress</a> and the <a href="https://blockworks.co/news/sec-crypto-enforcement-actions-accelerate">SEC</a> are taking a harsher look at the industry, and it’s only a matter of time before banks have new guidelines.



<h2 class="wp-block-heading">Scrutiny of crypto access to the banking system heats up&nbsp;</h2>



In a <a href="https://blockworks.co/news/senate-banking-hearing-on-crypto-crash">Senate hearing earlier this month</a> to discuss recent turmoil in markets, witness Lee Reiners, policy director of the Duke Financial Economics Center, urged lawmakers to isolate digital assets from financial institutions.&nbsp;



“We should do everything we can to restrict crypto from entering the banking system,” Reiners said in his testimony.&nbsp;&nbsp;



Banks are starting to take the hint, too. Notoriously crypto-friendly Signature Bank dropped <a href="https://blockworks.co/news/signature-bank-limit-on-swift-transactions-with-binance-affects-few-users">long-term client Binance</a> last month and Custodia’s second bid for Fed supervision was unanimously <a href="https://www.federalreserve.gov/newsevents/pressreleases/orders20230223a.htm" target="_blank" rel="noreferrer noopener">denied</a> Thursday. 



Custodia is now suing the Fed Board and its Kansas City branch over the dispute.&nbsp;



“What matters is whether banks are actually being pressured or not, and there is some evidence they are,” Galaxy analysts said.&nbsp;



“Further, it matters whether the sum of the actions the banking regulators have taken has had an impact on bank’s risk tolerance frameworks, i.e., whether both banks that do and banks that do not provide services to the sector have sufficient clarity or are not otherwise dissuaded from providing services to the crypto sector.”



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Banks Should Back Deposits From Crypto Customers With Cash: US Agencies

Sam Reynolds

<div id="highlights-block_61964dccecf74" class="highlights">
 <ul>
 <li>Anchorage is a major player in digital asset custody, and now on the radar of major Wall Street firms</li>
 <li>KKR&#8217;s total assets under management reached $459 billion in Q3, 2021</li>
 </ul>
 
</div>



Private equity firm KKR &amp; Co is set to lead an investment round into digital asset bank <a href="https://cms.blockworks.co/?s=Anchorage" target="_blank" rel="noreferrer noopener">Anchorage</a>, which would value the bank at $3 billion, <a href="https://www.theinformation.com/articles/kkr-plans-to-lead-investment-in-crypto-firm-anchorage" target="_blank" rel="noreferrer noopener">The Information reports</a>.



This move by KKR continues the firm’s interest in digital assets. In September, <a href="https://cms.blockworks.co/private-equity-firm-kkr-invests-in-defi-and-blockchain-focused-parafi-capital/" target="_blank" rel="noreferrer noopener">Blockworks reported that KKR has invested</a> as a limited partner in ParaFi Capital’s flagship fund. ParaFi manages about $1 billion and focuses on decentralized finance and blockchain technology. Recently, the <a href="https://cms.blockworks.co/parafi-to-launch-200-million-growth-fund/" target="_blank" rel="noreferrer noopener">company has been making moves</a> to launch a $200 million growth fund. 



ParaFi’s founder Ben Forman was once KKR’s research head, and the firms are said to maintain close ties.&nbsp;



Anchorage has attracted significant institutional interest since its inception. Earlier this year Singapore’s GIC, one of its sovereign wealth funds that’s a low-risk, blue-chip investor, closed an $80 million round into the bank, <a href="https://cms.blockworks.co/gics-anchorage-investment-sheds-light-on-future-of-digital-assets/" target="_blank" rel="noreferrer noopener">Blockworks reported</a>. Within Asia, GIC is considered to be a very conservative investor looking for infrastructure plays, whereas its cousin, Singapore’s Temasek, is compared to Masayoshi Son’s Softbank preferring big bold bets.&nbsp;



The Information also reported that Fireblocks, a custodian, is in the process of raising a round with a valuation of $8 billion.&nbsp;&nbsp;&nbsp;



To date, Anchorage has raised $137 million over four funding rounds, according to <a href="https://www.crunchbase.com/organization/anchorage">Crunc</a><a href="https://www.crunchbase.com/organization/anchorage" target="_blank" rel="noreferrer noopener">h</a><a href="https://www.crunchbase.com/organization/anchorage">base Pro</a>.&nbsp;The regulated custody of digital assets remains a significant barrier to mainstream adoption. In the US, major baking regulators FDIC, Federal Reserve and Office of the Comptroller of the Currency have been <a href="https://www.reuters.com/business/finance/us-regulators-exploring-how-banks-could-hold-crypto-assets-fdic-chairman-2021-10-26/" target="_blank" rel="noreferrer noopener">exploring</a> how best to coordinate supervision of banks that want to provide custody services. Previously, the OCC took proactive steps to establish a “<a href="https://cms.blockworks.co/occ-to-unveil-bank-charter-for-crypto-financial-services-firms/" target="_blank" rel="noreferrer noopener">crypto bank charter</a>” with Anchorage and Paxos <a href="https://cms.blockworks.co/paxos-gets-occ-approval-for-a-bank-charter/" target="_blank" rel="noreferrer noopener">two prominent recipients</a> earlier this year. 



Anchorage PR representatives, reached by Blockworks, declined to comment.



This story was updated <meta charset="utf-8">on November 18, at 11:09 am ET.



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KKR Leads Anchorage Series D Raise at $3B valuation

<div id="highlights-block_614dff334b5d1" class="highlights">
 <ul>
 <li>Saule Omarova is calling for greater oversight of big banks and new financial technologies, including cryptocurrencies </li>
 <li>The nomination will have to receive Senate approval</li>
 </ul>
 
</div>



President Biden has named his pick for the head of Office of the Comptroller of the Currency, and, if confirmed, big banks and digital asset firms are in for a rude awakening.&nbsp;



The White House <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/23/president-biden-announces-key-nominations-for-financial-regulation-and-investor-protection/">announced</a> the nomination of Saule Omarova, a professor at Cornell Law School, on Thursday. Omarova has said she wants to “end banking as we know it,” including greater government oversight of Wall Street and cryptocurrencies.&nbsp;



The OCC, a 3,500 person agency, is responsible for regulating and supervising national banks and federal savings associations. It also oversees related business practices of banks, including mergers and newer areas of engagement, such as cryptocurrency.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“If confirmed, I will work hard to make sure that our banks remain stable, strong and serve the needs of the American people,” Omarova said in a statement obtained by Blockworks. </blockquote>



In her writings, Omarova has said she is in favor of restructuring the Federal Reserve. She has also called for the central bank to provide citizens with bank accounts, solving an issue that crypto advocates have long said that blockchain technology would accomplish.&nbsp;



These plans are part of her “blueprint for radically reshaping the basic architecture and dynamics of modern finance,” she wrote.&nbsp;



Omarova has also said that consumer deposits should be moved into digital-dollar accounts at the Fed, hinting at the need for a central bank-backed digital currency.&nbsp;



“The success of Bitcoin paved the road for the subsequent emergence of numerous crypto-assets purporting to challenge the supremacy of sovereign money,” she wrote. “Recent growth of ‘stablecoins’&#8230; presents a particularly tangible challenge in this respect. Not surprisingly, Facebook’s plans to launch its own stablecoin, Libra, immediately heightened the salience of CBDC on central banks’ agenda.”



If confirmed, Omarova will be the first woman and the first nonwhite person to lead the OCC. The Biden administration has been looking to fill the position for the past month and will have to receive Senate approval for the nomination.&nbsp;



“Her experience as a policymaker, in the private sector, and in academia will allow her to work with stakeholders across our financial system to ensure the economy works for everyone, and to protect our economic recovery from the risky activities of Wall Street and other bad actors,” said US Sen. Sherrod Brown (D-OH), Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, in a statement.



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Are you a UK or EU reader that can’t get enough investor-focused content on digital assets?<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a> in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket. <a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.



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