The Office of the Comptroller of the Currency (OCC) has made headlines with its decision to discontinue bank audits that relied on the controversial notion of “reputational risk.” This shift comes in response to mounting criticism regarding the marginalization of the cryptocurrency industry within the broader financial landscape. Moving forward, the OCC plans to direct its auditing efforts toward more transparent risk factors and will update all relevant guidance regarding reputational risk.
How Does This Affect the Crypto Sector?
This pivotal change in OCC policy signals a more accommodating stance toward the cryptocurrency industry. Rodney E. Hood, the interim head of audits, clarified that the agency had never treated reputational risk as a blanket justification for audits, focusing instead on banks’ individual risk management frameworks.
Will Banking Open Up for Crypto Firms?
Historically, U.S. cryptocurrency firms have faced hurdles in establishing and maintaining bank accounts. Industry leaders argue that regulatory practices have been systematically used to exclude these businesses from traditional banking services, highlighting the “reputational risk” rationale as a significant barrier.
Recent legislative movements, including a bill passed by the U.S. Senate Banking Committee, aim to prohibit federal audits on the basis of reputational risk. Support for the bill has been predominantly from Republican members, with Senator Tim Scott emphasizing that it addresses not only cryptocurrency firms but also other groups viewed as politically objectionable.
The cryptocurrency community has likened this situation to “Operation Choke Point 2.0,” evoking a past initiative that limited banking access for specific sectors. Caitlin Long, CEO of Custodia Bank, welcomed the OCC’s decision, arguing that the previous use of reputational risk had been weaponized against certain industries.
– OCC’s decision removes reputational risk from audits.
– Aims to foster trust in the banking system.
– Legislative efforts are in motion to further protect crypto interests.
As the OCC shifts its focus, this policy change could significantly alter the banking landscape for cryptocurrency companies, potentially leading to greater integration of these businesses into the financial system.
