U.S. Federal Reserve Launches New Oversight Program for Cryptocurrency Activities in Banks

In a recent development, the U.S. Federal Reserve has introduced a novel program aimed at overseeing cryptocurrency activities within banks. While the program does not signal a departure from existing policies, it does provide a more comprehensive framework for banks to adhere to.

Under this initiative, the Federal Reserve has outlined its expectations for banks engaging in digital asset activities. The program, termed “novel activities supervision program,” entails close collaboration between the central bank’s digital asset experts and its regular regulatory supervisors. This cooperative approach underscores the importance of proper oversight in the evolving crypto sector.

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Of particular note is the Federal Reserve’s detailed clarification on banks’ involvement with stablecoins. Institutions involved in “issuing, holding, or transacting in dollar tokens for payment facilitation” are now required to demonstrate their ability to conduct these activities in a secure and responsible manner. Pre-approval from the Federal Reserve is necessary for these endeavors to proceed.

Obtaining this pre-approval is no simple task, as banks must showcase their capabilities to “identify, measure, monitor, and control the risks of its activities.” The Federal Reserve’s rigorous assessment will also scrutinize potential vulnerabilities such as money laundering, customer security, and cyber threats.

This recent announcement builds upon the crypto guidance issued by the Federal Reserve earlier this year and aligns with the overarching objective to maintain a clear boundary between the banking system and the crypto sector. The new program, while fostering innovation, underscores the importance of stringent oversight and regulation.

Under this program, each bank will receive notification when its digital asset exposure is due for review, with the level of supervision tailored to the extent of engagement in novel activities. This approach ensures that financial institutions can experiment and innovate while upholding the highest standards of security and compliance.

The Federal Reserve’s new oversight program is designed to strike a balance between enabling innovation and ensuring the safety and accessibility of financial services. As the crypto landscape continues to evolve, this program aims to create a conducive environment for responsible growth and advancement in the financial sector.