State Banking Regulators Seek Coordinated Federal Tokenized Deposit Guidance
"Regulatory and supervisory guidance will provide much needed clarity for banks as they consider how and whether to pursue deposit tokenization projects. The agencies should prioritize issuing such guidance in coordination with state supervisors to help banks responsibly leverage DLT technologies for deposits[.]"
CSBS Letter to Federal Banking Regulators
"Regulatory and supervisory guidance will provide much needed clarity for banks as they consider how and whether to pursue deposit tokenization projects. The agencies should prioritize issuing such guidance in coordination with state supervisors to help banks responsibly leverage DLT technologies for deposits[.]"
CSBS Letter to Federal Banking Regulators
The Conference of State Bank Supervisors ("CSBS") urged federal regulators to issue joint guidance on tokenized deposits for insured banks.
In a letter to the FDIC, Federal Reserve, and OCC, CSBS emphasized that tokenized deposits—digital representations of traditional bank deposit liabilities recorded on distributed ledgers—have the potential to enhance the efficiency of deposit services. CSBS stated that these technologies could also enable new capabilities, such as programmable payments. The organization noted that banks remain hesitant to invest in such projects without consistent and detailed direction from federal and state authorities.
CSBS highlighted several areas where clearer regulatory expectations are needed:
- Deposit Insurance, Classification & Recordkeeping. CSBS requested confirmation that tokenized deposits are insured to the same extent as traditional deposits and sought guidance on how institutions should record, reconcile, and report these liabilities on distributed ledgers.
- BSA/AML/OFAC Compliance. CSBS asked for clarification on how banks can meet customer identification, transaction monitoring, and sanctions screening obligations in a tokenized deposit environment.
- DLT Types & Network Structures. CSBS sought expectations for the use of private versus public blockchains and guidance on the oversight of non-bank participants in shared ledger networks.
- Liquidity Risk Monitoring & Management. CSBS emphasized the need for updated expectations to account for the liquidity risks posed by always-on, 24/7 redemption capabilities.
- Programmable Payments. CSBS requested supervisory expectations for banks embedding smart contract functionality into tokenized deposits, including considerations related to operational risk, legal enforceability, and consumer protection.
- Cybersecurity, Operational Resilience & Third-Party Oversight. CSBS urged the development of tailored expectations for managing cyber and operational risks associated with distributed ledger systems and third-party service providers.
- Consumer Protection & Disclosure Expectations. CSBS called for clarity on disclosure obligations and how existing consumer protection and payment rules apply to DLT-based products.