The role of the Office of the Comptroller of the Currency (OCC) is charged with regulating banks.
And if recent candidates being “vetted” by the Biden administration are any indication, that regulatory body might be stepping outside those confines, to embrace, and likely tame, the cryptocurrency sphere, often compared to a “wild west” of unfettered activity likely in need of regulations, especially at the intersection of FinTechs, banks, digital coins and just how it all might come together.
As reported last week, Cornell banking law professor Saule Omarova is among the leading candidates to be nominated to lead the OCC.
See also: Biden Vets Saule Omarova To Lead OCC
In terms of background, Omarova has in the past stated that banks could conduct crypto trading activities in ways that bring those activities outside the Fed’s purview. It seems that the logical extension of that sentiment is that more risk would be introduced into the equation.
Indeed, there’s a telling statement she made on MSNBC, vis-a-vis banks: When things go wrong, “we suddenly become the janitor. We’re never allowed to sit at the table when decisions are made upfront.”
Rid And Reward
We contend that signals a desire, and intent, to become more proactive about banking regulation — and by extension, the new avenues of risk and reward that would come with financial institutions’ delving into crypto trading.
The FIs … well, they’re getting deeper into the mix. In just one visible example, JPMorgan Chase has developed its JPM Coin, which has been viewed as a way to streamline and digitize payments, especially those done cross-border, as commercial transactions.
Omarova’s ascension to the top spot at the OCC — and a proactive approach to crypto regulation tied to banks — would also signal a bit of departure from earlier OCC chiefs, who had given FIs leeway to for banks to bring services such as custody and other offerings to crypto firms and larger investors. Under the previous tenure of Brian Brooks as acting OCC comptroller, we’ve seen FinTechs and others gain a larger foothold in the banking sphere.
Back in January, and under Brooks, the OCC said that chartering authority for FinTechs should be left to his agency’s supervision. Brooks, of course, stepped down just this month from his role as head of U.S. operations of crypto exchange Binance, for reasons so far unknown other than statement that Brooks and the firm had “strategic differences.” Binance, of course, has been facing increased regulatory scrutiny over the company’s consumer protection and other practices.
Dealing With Disruption
In reading some tea leaves, we’ve delved into recent writings by Omarova to see how her approach to FinTech — and by extension, crypto — regulation might translate to a tenure at the OCC. In a Cornell University Law School paper titled “Dealing with Disruption: Emerging Approaches to FinTech Regulation,” Omarova notes that “Some of the most immediately pressing issues, for example, concern the economic functions and corresponding regulatory status of specific tech-driven financial instruments.” And cryptos, she said in that paper, represent a visible example of disruption. As is germane to charters, she wrote, “from the states’ perspective, a federal fintech charter presents a competitive threat, especially since several states already offer specialized licenses for cryptocurrency exchanges and other fintech firms offering cryptocurrency services.”
In addition, she wrote, the launch of Libra/Diem would have broader macroeconomic and political implications of “opening central banks’ balance sheets to Big Tech and other emerging fintech platform operators. The entry of Big Tech companies into financial services reveals the crucial link between the sheer market power these companies yield in purely commercial markets and their potential to emerge as a new breed of ‘too big to fail’ financial institutions.”
It’s not too far-fetched to say that where the OCC leading up a to a possible Omarova tenure has been crypto-friendly (at least in terms of letting banks set up crypto-related services), caution may be the mindset moving forward.