Even though the cryptocurrency domain is constantly growing and becoming even more popular, established banks are still reluctant to embrace the usage of cryptocurrencies assuming that their potential risk will surpass their possible benefits. However, supervisory organizations like the Office of the Comptroller of the Currency (OCC) are striving to transform banks’ attitudes towards cryptocurrencies, with the expectation that these digital currencies can help financial institutions rejuvenate and become more productive.
As a part of that, the OCC has recently released many explanatory letters outlining how regular financial institutions can engage in digital currency transactions. This attempt accords with the expectation of OCC that more regulatory instruction will assist banks feel more at ease with these cryptocurrencies. At the beginning of January, the OCC declared that national banks and federal thrifts can now complete payment transactions using permissionless blockchains and stable coins. This enables banks to process payments more quickly and without the involvement of a third-party organization.
How Traditional Banks Can Engage in the Cryptocurrency Sector
Adoption of cryptocurrency can help simplify, improve and update financial services, and there have been a number of latest sector developments that are capable of alleviating banks’ fears about the dangers and instead allowing them to identify the possible advantages.
Let’s look at the several benefits offered by digital currencies to banks and their users.
Able to Offer Crypto Custody Services – The Office of the Comptroller of the Currency (OCC) announced in July that financial institutions and thrift institutions will be able to offer cryptocurrency custody services to clients, which includes keeping special cryptographic keys for obtaining private wallets. This implies that OCC assumes that financial institutions can securely and efficiently keep either digital currency or the key to obtaining cryptocurrency on an e-wallet for their clients.
Assists in the Enrolment of More Investors and Offers Proficient Assistance – Banks can help in bringing less knowledgeable investors into the place by creating devices that will make it easier for their customers to adopt cryptocurrency. Customers will be able to put the cryptocurrency on the back end or via other derivative instruments, and banks will be able to provide fixed charge cryptocurrency accounts. Banks are capable of mitigating some of the strain of investors who are not specialists in cryptocurrencies by playing as a reliable mediator that is respectable in the banking sector. In addition to that, the bank will protect investors’ assets.
AML/KYC regulations are strictly enforced by Banks – The Financial Crimes Enforcement Network decided in 2019 that all crypto transactions and custodial aids performed via cryptocurrency that is regarded as cash service affairs must comply with anti-money laundering / Know Your Customer regulations.
This will aid in the prevention of fraudulent transactions, illicit operations, and fraud on these platforms. These rules may make it easier for financial institutions and other big banking institutions to carry out a prior check on customers who engage in cryptocurrency transactions.
Financial institutions should consider treating cryptocurrency as a rival to that of a mate. In fact, banks can play an important part in the cryptocurrency sector, incorporating certain required guarantees and protection to the greatly uncontrolled conditions. Embracing digital currencies and blockchain technology, in general, can simplify processes and take the financial institution to the next level of productivity and invention.