OCC, FDIC Tighten Definition of Unsafe Bank Practices, Limiting Leeway to Pressure Crypto Firms

The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. clarified the standards they use to define "unsafe or unsound practices" in bank supervision. By tying scrutiny more closely to actual legal violations and material financial risks, the change could also ease regulatory uncertainty for banks serving lawful clients such as crypto firms.

On Aug. 27, the OCC and FDIC issued a final rule establishing a uniform definition of "unsafe or unsound practices" and common supervisory standards for banks. The rule will take effect 60 days after it is published in the Federal Register.

The core of the rule requires supervisory objections to be linked to material financial risk or compliance issues involving banking laws and regulations. It also directs examiners to prioritize substantive financial risks over nonfinancial matters such as policies, procedures and documentation.

The rule also standardizes the threshold for issuing Matters Requiring Attention, or MRAs, which require banks to take corrective action. The OCC and FDIC said the standards will still be applied based on each institution's risk profile, but the rule is limited to financial institutions directly supervised by the two agencies.

In the crypto industry, the move is being viewed as one that could reduce pressure on banks to limit services to crypto companies. Eleanor Terrett, host of Crypto in America, wrote on X that the change would make it harder for supervisors to pressure banks to cut ties with lawful clients, including crypto firms, based on vague reputational or procedural concerns.

She also described the rule as another important step in reversing what the industry has dubbed "Operation Chokepoint 2.0." The term refers to the crypto industry's claim that US regulators used bank supervision to restrict crypto companies' access to financial services.