Federal Authority Declares Completion of Oversight Initiative for Cryptocurrency Adoption Among Banks
The Federal Reserve has announced a significant shift in its regulatory approach for banks interacting with the crypto and fintech sectors. Following the discontinuation of the "novel activities" supervision program, the new regulatory approach for banks will now integrate the supervision of these activities back into the Federal Reserve's standard, normal supervisory process.
Established in 2023, the "novel activities" program was designed to address unique risks from crypto-asset custody, crypto-collateralized lending, digital asset trading, stablecoin issuance, and complex fintech partnerships. However, with the Fed now having a "strengthened understanding" of these activities, related risks, and bank risk management, the need for a separate focused supervisory program has diminished.
The program, which aimed to scrutinize how banks engage with emerging technologies, particularly in the digital asset industry, has been discontinued, with the rescission of the 2023 supervisory letter that created the program. This move aligns with a broader regulatory trend of treating crypto and fintech activities under existing banking risk management and supervisory standards rather than imposing specialized, heightened scrutiny.
Related regulatory actions have included clarifications that banks may engage in crypto activities without needing prior supervisory approval, reflecting a more permissive and integrated approach across federal banking regulators. This development has been hailed by market expert MartyParty as the definitive end of the operation "Choke Point," a coordinated effort by the federal government to debank the crypto industry.
The integration of crypto and fintech oversight into the Fed's conventional bank supervision framework is not the only development in this space. Notably, Citigroup has confirmed plans to offer stablecoin and crypto ETF custody, which could enhance the adoption of crypto assets, especially stablecoins, by banks such as Morgan Stanley and Citigroup.
This shift in regulatory approach by the Federal Reserve is part of a broader effort to support the growth and integration of crypto and fintech activities within the traditional banking sector. It aligns with President Donald Trump's goal to make America the "crypto capital of the world" with new regulatory frameworks for digital assets. However, the foundation of the Strategic Bitcoin Reserve, another initiative under Trump's administration, remains unclear, with the US Treasury Secretary yet to reveal its details.
The Federal Reserve's new regulatory approach for banks encompasses integrating crypto and fintech activities, such as crypto-asset custody, digital asset trading, and stablecoin issuance, into its standard supervisory process within the business sector. This shift in strategy reflects a broader regulatory trend, where banks are no longer required to seek prior approval for engaging in crypto activities, a move that aligns with a more permissive and integrated approach across federal banking regulators.
