On December 6, 2021, the OCC issued its Semiannual Risk Perspective in which it outlined key issues facing banks that pose threats to their compliance with applicable laws and regulations. The report focuses on five areas: the operating environment, bank performance, special topics in emerging risks, trends in key risks, and supervisory actions.
Regarding trends in key risks, the report emphasizes that innovation and adoption of new products and services contribute to an increasingly complex operating environment. The report identifies distributed ledger technology and digital assets as examples of such new products, and noted that these products "may broaden delivery channels and the functionality of financial services." The report also noted that the OCC is approaching crypto-related activities in the federal banking system "very carefully" with "a high degree of caution," and "expects" supervised institutions to take same approach. Further, it states: "OCC supervised institutions should reach out to the appropriate OCC supervisory office before engaging in crypto-related activity." The report reminded banks interested in the development of crypto-custody services, crypto-asset derivative products, or the provision of access to third-party crypto-related products to conduct thorough due diligence and risk management. Referring to OCC Bulletin 2017 23, the OCC reiterated that banks must ensure they have "sufficient knowledge and expertise in the underlying products and services and processes to identify and address strategic, operational, compliance, and reputational risks."
The report also described some of the OCC's efforts and activities for the Digital Assets Policy Initiative with the Federal Reserve. It noted significant efforts: "developing a commonly understood vocabulary for using consistent terms regarding the use of crypto-assets by banking organizations; identifying and assessing key risks and considering legal permissibility related to potential crypto-asset activities conducted by banking organizations; and identifying areas that may benefit from additional clarification." The initiative plans to "provide greater clarity on whether certain activities related to crypto-assets conducted by banks are legally permissible and to provide expectations for safety and soundness, consumer protection, and compliance with existing laws and regulations" in 2022.
DISCLAIMER: This article was originally published by McGonigle PC prior to their combination with Davis Wright Tremaine LLP. The article is published here with permission.