Comptroller of the Currency warns of new risks DeFi faces
The OCC chief wrote an opinion piece for the Financial Times saying the DeFi sector was laying the groundwork for ‘autonomous’ banks
In the op-ed piece published yesterday, the Comptroller of Currency Brian Brooks acknowledged the DeFi sector’s progress and set forth that it could set the stage for “self-driving banks”. Brooks argued that following the implementation of the new policies, national bank charters could soon be delivered to DeFi protocols.
He also asserted that DeFi protocols that can operate without human intervention present challenges from a regulatory perspective. DeFi projects are typically automated, algorithmically-governed fund management protocols that don’t necessarily require human moderation.
He went on to add that his office had several regulations for banking systems but noted the swell in “self-driving” banking systems and eventual bypass of actual bankers could be a stumbling block. The Acting Comptroller of the Currency revealed there is a need to reconfigure banking regulations to suit the algorithm era.
“In the absence of federal regulatory clarity, US states rush to fill the void and create a patchwork of inconsistent rules that impede the orderly development of a national market,” he noted.
Brooks compared the existing banking policies to traffic laws drawing parallelism to self-driving cars.
“Most automotive laws — on speed limits, giving signals, drink-driving — had been designed to protect against dangerous drivers, not dangerous cars. Autonomous vehicles brought new risks that legacy rules never considered… Banking is headed down the same road,” wrote Brooks.
In the short while Brooks has served as the OCC, he has led the regulator to pay attention to the cryptocurrency space. At the beginning of the year, the Office of the Comptroller of the Currency issued a guidance notice that allows US banks to use blockchains and stablecoins for payments. While it may appear that Brooks is making an argument leaning towards federal regulation, it is hard not to agree with his point of view.
There’s indeed rationale behind the DeFi sector requiring more regulatory attention. In November 2020, blockchain sleuthing firm CipherTrace reported that the DeFi sector lacked clear regulations making it an attractive endeavour for hackers. This came at the back of several hacks that saw many DeFi protocols lose millions.
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Sam Grant, @KhareemSudlow