American banks can legally engage in encryption asset business.

As long as everything still meets the safety and robustness requirements of regulatory agencies, OCC will grant banks more encryption freedom.

Written by: Fintax

News Overview

On May 7, 2025, the Office of the Comptroller of the Currency (OCC) in the United States clearly stated that banks can outsource encryption activities to third parties, including custody and execution services. As long as everything still complies with the safety and soundness requirements of regulators, the OCC will grant banks more freedom in encryption.

The OCC clarified in its interpretive letter No. 1183 that national banks and federal savings associations may legally engage in activities related to encryption assets, provided they meet relevant regulatory and risk management requirements. This includes offering encryption asset custody services, participating in stablecoin issuance and settlement, and acting as nodes in distributed ledger networks. The letter rescinded the requirement in interpretive letter No. 1179 issued in 2021 that mandated banks obtain written approval from the OCC before engaging in such activities, thereby streamlining the process for banks to enter the encryption asset space. Additionally, the OCC has withdrawn the previous joint statement with other regulatory agencies regarding encryption asset risks, indicating a more open regulatory stance towards encryption asset businesses.

FinTax Brief Comment

1. The historical logic of regulatory easing: "Cautious - Open - Tighten - Reopen"

The regulatory game between the U.S. banking industry and encryption assets began in 2013. At that time, the Federal Reserve prohibited banks from directly participating in encryption asset businesses, citing "vague legal attributes" and "uncontrollable systemic risks." The underlying logic of this ban stems from multiple factors: early encryption assets such as Bitcoin were not defined as "currency" or "securities" under the Uniform Commercial Code, rendering existing regulatory rules inapplicable to banks; the bankruptcy of Mt. Gox in 2014 due to private key management vulnerabilities raised concerns among regulators about the risk transmission after banks' involvement; traditional financial institutions such as Visa and JPMorgan had previously lobbied Congress to delay the impact of encryption technology on the existing payment and clearing system.

In 2020, OCC issued Interpretation Letter No. 1174, which loosened restrictions for the first time, allowing banks to provide customers with encryption asset custody services. The direct motivations for this shift include a surge in market demand and improvements in technological compliance: according to a tweet released by Grayscale in December of that year, the total scale of encryption assets under management (AUM) reached 12.2 billion USD. Institutional clients represented by Grayscale had a demand for relaxed financial regulations, prompting a series of policy adjustments; meanwhile, compliant stablecoins like USDC, through on-chain transparent audits and a 100% fiat reserve mechanism, partially alleviated asset transparency disputes, providing more legitimacy for encryption asset custody services.

With the change of regulatory leadership, OCC adjusted its previous open policy in 2021: Interpretive Letter No. 1179 requires banks to submit written notice to regulators and obtain "no objection" approval before engaging in the aforementioned encryption asset business. This move is seen as a tightening of the previous open policy, reflecting regulators' concerns about the potential risks of encryption assets, especially after the collapse of crypto platforms like FTX in 2022.

In 2025, under the leadership of Acting Director Rodney E. Hood, the OCC once again adjusted its policies to ease restrictions on banks engaging in encryption asset businesses. Interpretive Letter No. 1183 rescinded Letter No. 1179, removing the requirement for banks to obtain "supervisory non-objection" before engaging in encryption asset businesses. It also reaffirmed that the encryption asset businesses described in Letters No. 1170, 1172, and 1174 are still considered legal, provided they meet risk management and compliance requirements.

2. Applicable objects and business scope of the new regulations

1. Applicable objects:

The OCC's 1183rd interpretive letter explicitly applies to the following two types of financial institutions: National Banks and Federal Savings Associations.

2. Scope of Business:

According to the guidance of OCC, national banks and federal savings associations can engage in encryption asset business in the following three main areas:

(1) encryption asset custody services (Crypto-Asset Custody Services)

Banks are authorized to provide clients with custody services for encryption assets, including holding the private keys of cryptocurrencies. This service is seen as a modern extension of traditional banking custody services, requiring banks to have appropriate risk management and compliance control measures in place.

(2) Stablecoin Reserve Management

Banks can accept USD deposits as reserves for stablecoins, provided that these stablecoins are pegged to a single fiat currency on a 1:1 basis and are held in custody by the bank. This business requires banks to comply with anti-money laundering regulations and ensure the safety of customer funds.

(3) Participation in Distributed Ledger Networks

Banks are allowed to participate as nodes in distributed ledger networks (such as blockchain) to verify and record customer payment transactions. In addition, banks can also use stablecoins to conduct payment transactions on the distributed ledger, which is seen as a modernization of traditional payment services.

Three, Analysis of the Multi-Dimensional Impact of the New Regulations

(1) Reshaping the banking business model

The relaxation of the OCC policy means that the high walls between traditional banks and the encryption asset market are being torn down. Banks will no longer be limited to the role of "peripheral service providers" for encryption assets, but can truly enter core areas such as infrastructure operation, asset custody, and on-chain payment settlement.

The recent loosening of policies means that banks are formally "invited" to enter the market for the first time, positioning them as potential on-chain order creators. From an infrastructure perspective, banks may dominate the construction of compliant and trustworthy on-chain payment and custody networks, replacing the current predicament of centralized platforms frequently facing crises; from a client structure perspective, banks can connect with Web3 institutional funds, high-net-worth individuals, institutional investors, and other high-trust preference fund sources, injecting more stable incremental capital into the encryption market; and from a business model perspective, services such as encrypted custody, on-chain transaction matching, and stablecoin settlement will become important supplements for banks to break free from a singular reliance on net interest margin.

(2) Promoting the unification of compliance standards

The latest requirements from OCC emphasize that any business related to encryption assets must meet "equivalent regulatory requirements." This means that the KYC/AML, operational security, and risk control systems that traditional banks are accustomed to must be transplanted into the highly heterogeneous on-chain environment. Furthermore, this requirement is not only aimed at the banks themselves but will subtly change the "behavioral paradigm" of the entire encryption industry.

In the past, the industry often used "technology decentralization" as a talisman for exemption from compliance, but in the future, the equivalence of financial functions, regulatory risks, and responsible entities will become the new compliance baseline. More importantly, this change is not imposed by regulatory orders, but is spontaneously caused by banks participating in market games as "reputation nodes" within the system. In this process, the crypto industry will no longer be an "exception zone" of the law, but will become part of a consensus order governed by norms, which is where financial modernity is evolving in the context of new technologies

(3) Reconstruction of the Regulatory Coordination Model

The OCC's explanatory letter is not isolated; it is a signal of the U.S. multi-agency regulatory framework seeking "boundary consensus." In recent years, the U.S. has faced ongoing disputes over encryption regulation, with the SEC, CFTC, FinCEN, OCC, and Fed each setting limits, leading to fundamental uncertainty in the industry over "who is the primary regulator." This fragmentation of policy under a multi-player game not only increases compliance costs but also drives financial innovation towards risk-taking in regulatory ambiguity.

The OCC's initiative to clarify the authority of banks is actually an attempt to clarify the division of labor between institutions, and this trend has a bellwether significance for the world - the United Kingdom, the European Union, Japan and other countries are also simultaneously promoting the prudent opening of banks to the participation path of crypto assets. If a unified digital asset framework is introduced at the federal level in the future, such as the Digital Commodity Exchange Act proposed by the U.S. Congress, OCC's explanatory letters could serve as institutional precedents and operational manuals to provide an institutional basis for subsequent legislation. In this sense, the OCC's new regulations are not only "licensing", but also a shift in policy style: from suppressing technical uncertainty to embedded guidance and structural coordination.

4. Conclusion

The confirmation of OCC for banks to legally engage in encryption asset business marks a key step in the evolution of financial regulation in the Web3 era. It is not just a policy statement, but a "signal shift" that reconstructs the boundaries of banking operations, guides the evolution of encryption compliance, and forces the improvement of industry standards. For traditional banks, this is a ticket to enter the blue ocean of new asset services; for the encryption market, this is a milestone of being "accepted" by the mainstream financial system.