For the first time in a dozen years, the Office of the Comptroller of the Currency (OCC) is seeking to update its regulations on digital activities to consider banks’ use of blockchain and distributed ledger technology (DLT), as part of a larger effort regarding banks’ use of technology. On June 4, 2020, the OCC released an Advance Notice of Proposed Rulemaking (ANPR) seeking public comment on the digital activities of banks, including with respect to DLT. The ANPR states that “[the OCC] is interested in making sure it is aware of and understands the evolution of financial services, so it ensures the federal banking system continues to serve consumers, businesses, and communities effectively[, and] is reviewing its regulations on bank digital activities to ensure that its regulations continue to evolve with developments in the industry. [The ANPR] solicits public input as part of this review.” Public comments on are due by August 3, 2020.
Under the existing regulatory framework, OCC regulations specifically addressing national banks’ digital activities are generally set forth in 12 C.F.R. part 7, subpart E, which was originally promulgated in 2002 and updated in 2008. Since then, the OCC has generally responded on a case-by-case basis to industry requests for approval to engage in “innovative, technology-driven banking activities.” Now, the OCC is undertaking a comprehensive review of 12 CFR part 7, subpart E (as well as related part 155), and the ANPR was issued in connection with such review.
The ANPR lists and solicits public comment for 11 specific technology-related questions. Of those 11, the question related to DLT states:
“5. How is distributed ledger technology used, or potentially used, in banking activities (e.g., identity verification, credit underwriting or monitoring, payments processing, trade finance, and records management)? Are there specific matters on this topic that should be clarified in regulatory guidance, including regulations?”
Other questions concern artificial intelligence, “regtech,” and similar topics that may potentially overlap with DLT. In recent years, the OCC has established certain innovation-friendly programs, including a dedicated Office of Innovation, and the ANPR seems to fit that pattern. As financial institutions increasingly implement DLT-based systems and products, OCC regulation may focus on that area and become a critical facet of its development.
In response to the ANPR, financial institutions and other interested parties may wish to consider submitting comments. Regulation works best when it is informed by industry practices, and in the time since OCC last updated its framework, blockchain technology has become an important part of the financial industry. Revised regulations will help provide certainty to financial institutions that use or are considering using such technology.