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US regulator OCC authorizes the use of INVNs and stablecoins for payment activities

By Pavithra R

January 05, 2021

  • United States
  • US
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US regulator OCC authorizes the use of INVNs and stablecoins for payment activities
Brian P. Brooks, Acting Comptroller of the Currency

The Office of the Comptroller of the Currency (OCC) has published a letter addressing the legal permissibility of certain payment related activities that involve the use of new technologies, including the use of independent node verification networks (INVNs or networks) and stablecoins, to engage in and facilitate payment activities. 

An INVN consists of a shared electronic database where copies of the same information are stored on multiple computers, and a stablecoin is a type of cryptocurrency that is designed to have a stable value as compared with other types of cryptocurrency. Both of which represent new technological means of carrying out bank-permissible payment activities. 

According to the letter, National banks and Federal savings associations may use these technologies to perform bank-permissible functions, such as payment activities. The agency letter concludes a national bank or federal savings association may validate, store, and record payments transactions by serving as a node on an INVN. Likewise, a bank may use INVNs and related stablecoins to carry out other permissible payment activities, provided it comply with applicable law and safe, sound, and fair banking practices.

“While governments in other countries have built real-time payments systems, the United States has relied on our innovation sector to deliver real-time payments technologies. Some of those technologies are built and managed by bank consortia, and some are based on independent node verification networks such as blockchains. The President’s Working Group on Financial Markets recently articulated a strong framework for ushering in an era of stablecoin-based financial infrastructure, identifying important risks while allowing those risks to be managed in a technology-agnostic way. Our letter removes any legal uncertainty about the authority of banks to connect to blockchains as validator nodes and thereby transact stablecoin payments on behalf of customers who are increasingly demanding the speed, efficiency, interoperability, and low cost associated with these products,” said OCC’s Acting Comptroller of the Currency Brian P. Brooks. 

While the OCC neither encourages nor discourages banks from participating in and supporting INVNs and stablecoins, it mentions both INVNs and stablecoins present both benefits and risks. Among the potential benefits are listed enhancements in efficiency, effectiveness, and stability of the provision of payments. An INVN is also said to limit tampering or adding inaccurate information to the database because the information is only added to the network after consensus is reached among the nodes validating the information.

OCC reminds that banks that seek to use these networks should ensure that they understand these risks, as well as the risks generally associated with the underlying activity. Usually, payment activities involving cryptocurrencies could increase compliance risks, operational risks, including fraud risk. OCC similarly expects banks engaged in providing cryptocurrency services to customers to adapt and expand their BSA/AML compliance programs to assure compliance with the reporting and recordkeeping requirements of the BSA and to address the risks of cryptocurrency transactions.

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