Bank Regulators Withdraw Guidance on Digital Assets
Commentary by Sebastian Souchet
The Federal Reserve Board ("FRB") withdrew previously issued guidance for banks on crypto-asset and dollar token activities.
The FRB rescinded a 2022 Supervisory Letter in which the FRB advised all supervised banking organizations to take the following steps before engaging in cryptocurrency-related activities: (i) confirming legal permissibility under federal and state laws; (ii) filing necessary documents; (iii) establishing robust systems, risk management and controls; and (iv) notifying their lead Federal Reserve supervisory contact in advance. Institutions already involved in crypto activities were urged to notify the Federal Reserve as soon as possible. In an accompanying release on the withdrawal of the guidance, the FRB said it "will no longer expect banks to provide notification and will instead monitor banks' crypto-asset activities through the normal supervisory process."
The FRB also rescinded 2023 guidance to banking organizations on (i) supervision over "novel activities" and (ii) the process for state member banks to follow before engaging with dollar token or stablecoin activity.
Simultaneously, the FRB, FDIC and OCC rescinded two jointly issued 2023 statements (see here and here) regarding banks' crypto-asset activities and exposures. The FRB said it "will work with the agencies to consider whether additional guidance to support innovation, including crypto-asset activities, is appropriate."
Commentary
The federal banking regulators' collective withdrawal of the 2023 jointly-issued statements on crypto-asset risks and liquidity risks resulting from crypto-asset market vulnerabilities can be viewed as evidence that the FRB, OCC and FDIC are aligned in their general policy approach to crypto. The FRB's stated rationale for its withdrawal of both the jointly-issued statements and its 2022 and 2023 supervisory letters is one focused on "further support[ing] innovation in the banking system." Indeed, the FRB stated that it "will work with the [OCC and FDIC] to consider whether additional guidance to support innovation, including crypto-asset activities, is appropriate." In this respect, the federal banking regulators also seem to be on the same page as the SEC and CFTC.
In withdrawing the crypto-asset guidance, the FRB stated that it actions "ensure the [FRB's] expectations remain aligned with evolving risks." However, the meaning of "evolving risks" is unclear. Given the withdrawal of such guidance on banks' crypto-asset activities, the FRB and other federal banking regulators should clarify (i) exactly what their expectations are with respect crypto and (ii) what "evolving risks" are being considered.
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The Federal Reserve Board provided guidance to banking organizations on (i) supervision over "novel activities" and (ii) the process for state member banks to follow before engaging with dollar token or stablecoin activity.
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The Federal Reserve Board outlined steps supervised banks should take to ensure their cryptocurrency-related activities are conducted in a safe and sound manner.
