U.S. Banking Regulators Move to Curb ‘Operation Choke Point 2.0’ with New Rules on ‘Unsafe or Unsound’ Practices

U.S. banking regulators are taking steps to narrow the definition of ‘unsafe or unsound practices’ in bank supervision, a move that could significantly ease banking access for lawful businesses, including cryptocurrency firms. The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) are advancing procedures to finalize rules that would limit supervisory and enforcement actions to cases involving actual legal violations or material financial harm to a bank’s capital, liquidity, asset quality, or similar conditions.

Background: The ‘Unsafe or Unsound’ Provision and Its Impact on Crypto

For years, the term ‘unsafe or unsound practices’ has been used by bank examiners as a broad and ambiguous basis to pressure financial institutions into severing ties with certain clients, including crypto companies. This practice, often referred to as ‘Operation Choke Point 2.0,’ involved using vague reputational risk concerns to deny banking services to lawful businesses, without clear evidence of financial risk.

The new rules would require regulators to demonstrate that a bank’s actions pose a tangible threat to its financial health, rather than relying on subjective reputational considerations. This change is seen as a major step toward reversing the de-banking trend that has affected the crypto industry, which has frequently complained about being cut off from traditional banking services.