Anti-Money Laundering | Crypto

Is OCC Comptroller Brian Brooks is driving the big crypto price boom?

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It’s not just hedge funds that are driving the crypto price boom: structural pressure from OCC Comptroller Brian Brooks is also important. As we know from the life of Robert Moses, the post-war New York bureaucrat lionized as the Baron von Hausmann of New York, “bureaucrats” are capable of yielding vast power through relatively obscure roles as they rewrite critical pieces of legislation.

 

Hedge funds purchasing Bitcoin is a leading indicator of potential shifts yet to come. According to Bloomberg, Bitcoin’s Biggest Fans Are Hedge Fund Baby Boomers. For example, asset Managers such as Ruffer moving significant exposure to BTC. So, smart money believes that there is an inflection point to come after many months of relative calm in prices and transaction volume.

But a significant driver could be regulatory acceptance from OCC Comptroller Brian Brooks. A former Coinbase official has since his arrival systematically made a series of announcements to promote crypto adoption. Brian Brooks is the former chief legal officer of the cryptocurrency exchange Coinbase.

July: OCC allows banks to hold cryptocurrency assets for safekeeping. In July, the OCC wrote in an interpretive letter that banks could legally hold cryptocurrency assets via their custody services.

August: OCC’s Brooks questions need for government-owned payment systems

September: Banks can hold stablecoin-related assets for customers, OCC says. In September the agency cleared banks to hold certain assets in reserve accounts tied to stablecoin.

January 2021: OCC interpretive letter has said that Banks can use INVN and Stablecoins

One interesting dimension of US regulation is the balkanization from numerous overlapping regulators: the OCC, Fincen, the rest of the treasury, the federal regulators (e.g. NYFDS). Here we see pro-crypto moves from the OCC, but moves antagonist to crypto from Fincen and Treasury Secretary Steven Mnuchin.

Specifically, the volcanic reaction to unhosted wallets has been interesting. Specifically, the NPRM from Fincen / Treasury is looking to crack down on unhosted wallets, but the OCC is saying that unhosted wallets should not be allowed to exist in the January 2021 interpretative letter:

“As noted in a recent statement of the President’s Working Group on Financial Markets, stablecoin arrangements “should have the capability to obtain and verify the identity of all transacting parties, including for those using unhosted wallets.” “The stablecoin arrangement should have appropriate systems, controls, and practices in place to manage these risks, including to safeguard reserve assets. Strong reserve management practices include ensuring a 1:1 reserve ratio and adequate financial resources to absorb losses and meet liquidity needs.”

Either way, the series of changes from Brian Brooks and the OCC would see Crypto could become a critical part of the US banking infrastructure. But, there are unresolved tensions about getting the AML infrastructure resolved.

The technology is hard: this month US Treasury hits BitGo with sanctions violations on non custodial wallet saw a settlement of $98830 for 183 apparent violations of sanctions programs. Complaint claims that BitGo should have done IP address screening. Settlement Agreement between the US Department of the Treasury’s Office of Foreign Assets Control and BitGo, Inc. | US Department of the Treasury. Traditional institutions also struggle with AML : Wells Fargo says federal agency ends anti-money laundering consent order.

Further questions:

  • The central contradiction is that the OCC is trying push crypto to the mainstream, but to do so, it relies on a change resisted by the rest of the crypto industry initiated by Fincen and Mnuchin. How can unhosted wallets exist and banks be able to use INVN and Stablecoins at the same time?
  • Is the appointment of Brian Brooks a form of regulatory capture?
  • Will Brian Brooks be reappointed by the Senate? Or will Biden put in his candidate? If permanent, we will have 5 years of Brian Brooks as OCC Comptroller.
  • How politicised will the OCC become? The AML Act of 2020 was acknowledged to be favourable to Wall Street rather than Main Street.

 

 

 

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