Withdrawing steering allowing banks to have interaction in cryptocurrency-related actions received’t deal with the dangers introduced by nonbank crypto companies and received’t promote a safer market for shoppers and traders, two commerce teams wrote final week in a letter to the Workplace of the Comptroller of the Foreign money’s (OCC) performing chief, Michael Hsu.

Friday’s letter from the Financial institution Coverage Institute (BPI) and the American Bankers Affiliation (ABA) comes roughly two weeks after 4 senators, led by Elizabeth Warren, D-MA, requested that the OCC rescind three interpretive letters issued by his predecessor and a chunk of November joint steering the senators stated “could have uncovered the banking system to pointless danger” given “turmoil” within the crypto market.

In Interpretive Letters 1170, 1172 and 1174, then-Appearing Comptroller Brian Brooks decided that banks had been licensed to have interaction in sure crypto associated actions, together with offering cryptocurrency custody service for purchasers, holding deposits that function reserves for sure stablecoins, and working unbiased node verification networks and stablecoins for fee actions.

A month into taking the OCC’s high put up final yr, Hsu stated the OCC would evaluate the Brooks-era letters, and in November printed Interpretive Letter 1179, confirming that it was “legally permissible for a financial institution to have interaction in [crypto activities], offered the financial institution can display, to the satisfaction of its supervisory workplace, that it has controls in place to conduct the exercise in a protected and sound method.”

Warren this month wrote that the interpretive letters had been “problematic,” including that she and her fellow senators had been “involved that the OCC has didn’t correctly deal with the shortcomings of the previous interpretive letters and the dangers related to crypto-related banking actions, which have grown extra extreme in latest months.”

Warren’s issues observe summer time 2022’s “crypto winter,” a interval of market cooling, highlighted by the bankruptcies of crypto lender Celsius and brokerage Voyager Digital over “excessive market situations” that resulted in steep drops within the worth of Bitcoin and different cryptocurrencies.

The ABA and BPI, nonetheless, disagreed with Warren, arguing “the latest occasions within the crypto market had been wholly unrelated to banks’ involvement within the conventional banking actions described within the OCC Interpretive Letters.” Their rescission, the teams added, “wouldn’t improve the protections of financial institution traders, shoppers, or the monetary system in reference to cryptocurrency actions.”

The dangers highlighted in Warren’s letter must be addressed by the regulation of nonbank crypto companies and merchandise “which are at the moment largely unregulated,” the ABA and BPI asserted. Banks are “topic to complete and strong danger administration, supervision, and examination processes, and have substantial expertise with incorporating new applied sciences into the enterprise of banking,” the commerce teams wrote.

A number of of the nation’s largest banks stepped into the crypto world in 2020 and 2021. JPMorgan Chase started offering cash-management companies for cryptocurrency in Could 2020, and BNY Mellon started holding, transferring and issuing cryptocurrencies on behalf of its asset-management shoppers in February 2021.

Citi and State Road each launched digital property items in June 2021, gearing as much as assist shoppers put money into crypto, stablecoins, nonfungible tokens and central financial institution digital currencies.

The public and the monetary system profit from banks’ involvement in crypto-related actions, the teams stated.

They signed off on their letter with a warning, although. “Failure to offer readability relating to the expectations for all banks partaking in crypto actions is hindering the flexibility of banks to have interaction in accountable innovation on this area, thereby requiring shoppers to look solely to unregulated or frivolously regulated nonbank monetary service suppliers and limited-purpose, uninsured banking establishments for digital asset services and products, as a substitute of banks,” they cautioned the OCC.