The Federal Reserve has withdrawn key guidance related to crypto operations for state member banks, allowing more freedom in engaging with cryptocurrencies and stablecoins. This move aims to foster innovation while ensuring adequate risk management. The changes align with a broader policy direction to improve banking access for crypto firms, following criticisms of restrictive oversight.
In a significant regulatory shift, the Federal Reserve Board announced on Thursday that it has withdrawn key guidance governing how state member banks must manage crypto and stablecoin operations. This move aims to streamline oversight in the sector, while still trying to ensure safety and sound risk management practices. The Fed’s decision suggests a new era in which regulatory bodies aim to support innovation within the ever-evolving crypto landscape.
The original guidance was established back in August 2022, focusing on addressing potential risks associated with the rapid growth of crypto activities. Under this earlier framework, state-member banks were required to inform the Federal Reserve before they could start or continue any crypto-related activities. However, in February 2023, the Fed had introduced a non-objection letter that allowed banks to pursue stablecoin activities, conditional on receiving written consent and demonstrating effective systems for managing various risk factors.
With the revocation of this guidance, banks can now engage in crypto and stablecoin activities without needing prior confirmation or a supervisory non-objection from the Fed. These activities will instead be subject to the Fed’s regular supervisory oversight, marking a noteworthy shift in how these institutions will be monitored moving forward.
Furthermore, the Federal Reserve, alongside the FDIC and the OCC, has rescinded two joint statements from earlier this year that had outlined concerns regarding the risks associated with banks’ activities in the crypto space. By stepping back from these past requirements, the Fed indicates a readiness to adapt its regulatory stance. They also reaffirmed their commitment to work with other agencies to evaluate if any further guidance might be necessary to support innovation in the financial sector.
This rollback of regulations on crypto banking activities comes amidst a larger policy shift that aligns with former President Trump’s intentions to dismantle what some refer to as “Operation Choke Point 2.0.” Critics have argued that this Biden-era initiative stifled banks’ willingness to work with crypto firms by enforcing restrictive guidance. Under Trump’s influence, regulators such as the FDIC and OCC have been working on easing these constraints.
Just last month, the FDIC declared that banks would no longer need prior approval to participate in legally permitted crypto activities. Additionally, the OCC announced it would stop assessing national banks for “reputation risk” when considering their involvement with crypto engagements. This change directly responds to lengthy criticisms from the industry regarding the stigma attached to digital asset firms that hindered their access to essential banking services.
