As it stands, under the guidance banks can participate in payment processing with cryptocurrencies or stablecoins without advance approval. This decision constitutes an important change in the regulatory paradigm, away from a need for pre-approval and instead to a system of continuous regulation. Additionally, banks regulated by the Federal Reserve can now readily wade into the crypto space without seeking prior approval. They will still be subject to periodic examination and review through normal supervisory channels. This change brings the supervision of crypto activities in line with other financial products.

Shift in Regulatory Approach

The Federal Reserve's move reflects a broader effort among top banking regulators to adopt a more streamlined approach to banks' involvement with crypto assets. Going forward, the Federal Reserve will include banks’ activities in the crypto space as a regular component of its supervision. This amendment removes the requirement for banks to get prior approval before participating in those permissible activities. This amendment strikes the right balance to make the process more efficient for banks while still providing oversight of potential risks.

To be sure, this change does not herald the bank deregulation of every crypto activity in sight. The Federal Reserve will use its traditional supervisory methods to further examine banks’ participation in the crypto sector. This helps to guarantee that banks are effectively managing their risks and following all required laws and regulations.

Taken together, the Federal Reserve’s supervisory approach is intended to adjust to the changing development and rapid growth of the crypto market. At the same time, the Federal Reserve is weaving crypto oversight into existing supervisory structures. This is a big step to make sure that there’s consistent, effective monitoring of banks’ activities.

Responsibilities Remain

The Federal Reserve is calling for a more hands off approach. Nonetheless, banks continue to bear the burden of responsibility for the safety and soundness of their crypto-related activities. Banks still need to comply with current laws and regulations and adopt strong risk management policies. The decision by the U.S. Federal Reserve does not absolve banks of their responsibilities to protect consumers and the financial system.

In short, they want banks to do their due diligence very thoroughly before jumping into crypto activities. This means, for example, understanding the risk posed by particular crypto assets and creating controls focused on controlling those risks. On their end, banks need to be self-aware about whether they have the right resources and expertise to handle crypto safely and smartly.

The Federal Reserve looks forward to continuing to engage with and assist banks as they prudently explore and pursue potential opportunities in the crypto landscape. You send out supervisory guidance letters to banks. You do outreach to educate them on how to approach the challenges and opportunities that crypto assets create.

Scope of Application

As part of this new strategy, the new method only goes into effect for banks directly supervised by the Federal Reserve. Additionally, other regulatory agencies impose requirements on banks that they supervise that go beyond what’s required by the regulators. Overall, what is key is for each bank to take stock of the precise regulations that govern its potential crypto activities.

Banks should consult with their legal and compliance teams to ensure they are fully compliant with all applicable laws and regulations. This means knowing the obligations we have around anti-money laundering (AML), consumer protection, and data security.