The Office of the Comptroller of the Currency (OCC) has announced the cessation of bank audits based on the “reputational risk” rationale, a move that has sparked considerable debate.
This decision follows increased criticism regarding the exclusion of the cryptocurrency sector from the financial system. The OCC stated that future audits will focus on more transparent risk areas, and it will update all guidance and manuals related to reputational risk.
The OCC Signals Approval for the Crypto Sector
This recent decision marks a significant shift in the OCC’s approach towards the cryptocurrency sector. Rodney E. Hood, the interim audit head, emphasized that the institution had never used reputational risk as a “one-size-fits-all audit justification.” Hood reiterated that audits were solely focused on banks’ risk management processes.
OCC Cryptocurrency
The OCC has announced it will remove references to “reputational risk” from its handbooks and guidance. However, there will be no changes to banks’ obligations to manage risks. The OCC stated that these changes would enhance public confidence in the auditing process, a decision welcomed positively by industry representatives after long-standing criticisms of exclusion from the banking system.
Banking Path Opens for Cryptocurrency Companies
In recent years, many cryptocurrency companies in the U.S. have faced significant challenges in opening and maintaining bank accounts. Industry representatives argue that regulatory bodies have used arbitrary practices to keep cryptocurrency companies outside the financial system. In this context, the rationale of “reputational risk” has frequently come to the forefront.
Last week, a bill was voted on in the U.S. Senate Banking Committee that would prohibit federal regulators from auditing banks under “reputational risk” justifications. The bill passed the committee with support only from Republicans. Senator Tim Scott, the bill’s architect, noted that the legislation targets not only cryptocurrencies but also groups considered “politically undesirable.”
The cryptocurrency sector refers to such practices as “Operation Choke Point 2.0,” invoking a 2013 initiative by the U.S. Department of Justice that restricted access to banking services for certain sectors. Recently re-elected President Donald Trump had pledged to end such practices during his campaign, and rumors suggest he may soon issue a presidential decree regarding cryptocurrencies.
Caitlin Long, CEO of Custodia Bank, expressed her support for the OCC’s move to eliminate reputational risk from audit justification. She noted that this concept had been politically weaponized to target certain sectors.
What is the OCC?
The OCC is the official regulatory body overseeing the operations of national banks and federal savings associations in the U.S. Operating under the Department of the Treasury, the OCC aims to ensure the safety and stability of the banking sector.
