The Fed, The OCC And The FDIC Is Really A Crawl

The US has many regulators connected with banking organizations, the arrival of a new asset class or a mix of asset classes starts a turf war on which agency gets to regulate them. SEC, OCC, Fed, FDIC, CFTC, FINRA the list goes on and on. The Fed, the OCC and the FDIC published a Joint Statement on Crypto-Asset Policy Sprint Initiative and Next Steps today (Nov 23, 2021). Luckily for the regulated banks, this time three agencies have joined together. Inter-agency cooperation is rare, although Agency staff talk it up when they speak in panels or communicate with the public. Bitcoin was declared a commodity under the “anything but onions rule”, and CFTC appointed themselves the regulatory authority over Bitcoin under that rule. CFTC is not part of the three agencies that are co-operating in this series of Sprints.

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Photo by Carl Heyerdahl on Unsplash

Sprint is a term used in product development in technology, specifically in the Agile methodology. The characteristics of a Sprint are that it is one iteration in the journey toward a product. It is time-boxed which is one way of saying that the entire iteration finishes in a short period, as short as a week or two weeks and as long as a month. There is a well-defined delivery at the end of the Sprint. A technical Sprint consists of Sprint Planning, Sprint Checkins, Sprint Reviews and a Sprint Retrospective. During Planning a set of features to be delivered are decided based on resources including time. Daily Checkins are followed by a Review that includes users to check feature completion. After Review, a version is released, a Retrospective helps the team understand what is missing and what lessons can be learned. The results of the Retrospective are input into the next Sprint Planning. Which starts the cycle off again. Time-boxed is also a way of saying, no new features are admitted into a running Sprint. This practice requires tremendous discipline. The Sprint Leader (Scrum Master and or Product Owner) defends the team from distractions and demands output from the team, running interference by removing blockers. An efficient way of creating complex products that users want, iteratively, breaking down the work into chunks and periodically checking features with the users as the product evolves. A series of Sprints is called a Scrum.

The three regulatory agencies mentioned the technology Sprint as an inspiration for what they call “A Policy Sprint”. The report is on the result of several inter-agency Policy Sprints (in other words a Policy Scrum). The report starts by giving a list of what they worked on. It is not clear if any of these tasks are complete:

  • A commonly understood vocabulary using consistent terms for crypto-assets. Identifying and assessing key risks, including those related to safety and soundness, consumer protection, and compliance for these assets.
  • Analyzing the applicability of existing regulations and guidance and identifying areas that may benefit from additional clarification.
  • Key risk review used comment letters on FDIC’s RFI published in May.

These can be collectively called Sprint Reviews if mapped on to the tech Sprints.

To place the sprint work in context, staff reviewed and analyzed a number of possible crypto-asset activities including:

  • Crypto-asset custody.
  • Facilitation of customer crypto-assets transactions.
  • Loans collateralized by crypto-assets.
  • Payments, including stablecoins.
  • Holding of crypto-assets on a bank’s balance sheet.

These can be broadly mapped to Sprint Check-Ins.

Throughout 2022(sic), the agencies will provide greater clarity on the legality, compliance and safety of banks’ activities namely

  • Crypto-asset safekeeping and traditional custody services.
  • Ancillary custody services.
  • Facilitation of customer crypto-asset transactions.
  • Loans collateralized by crypto-assets.
  • Issuance and distribution of stablecoins.
  • Holding of crypto-assets on balance sheet.

In fact this can be said to be a Review of the same activities that they engaged with. In other words, they will be the outcome in 2022.

Looking at the timeline and the activities, this can be hardly said to be a series of “Sprints” unless these are Sprints by three tortoises. Maybe this demonstrates Zeno’s Paradox, if so who is Achilles? The desire to emulate technology Sprints is admirable, maybe even desirable, considering the usual glacial pace of rule making. Timeliness is of the essence, since technology is moving fast. However, to keep with the spirit of technical Sprints, a Sprint Review in the form of a release of existing output (or deliverables) is absolutely necessary. Have the Sprint Leaders given the users the deliverables? Who are the users? Are they us? The public? Or the banks? The vocabulary or glossary of terms has not been released, nor have any of the other deliverables. Just calling the process a Sprint or a series of Sprints (a Scrum) does not make it so. The spirit of a Sprint is releasing stuff and getting feedback on the output as well as doing a Retrospective on the process to improve the iteration. A three page outline of a laundry list that contains repetitive tasks and concerns does not a Sprint (or a Scrum) make.

Clarity in crypto-asset handling regulation by banks is needed and fast. Please have a few project managers and Scrum masters who know how to run a Sprint (or a series of Sprints) in your team. Just kicking the can down the road to 2022 is not what is needed. Get it together! We are depending on you.