The Federal Reserve has rescinded several crypto-related policies, aligning its stance with that of other regulators. Key regulations from 2022 and 2023 requiring banks to notify plans for crypto activity and obtain supervisory non-objections for dollar tokenization have been withdrawn. The Fed aims to adapt its guidelines to meet evolving risks in the banking system while promoting innovation.
In a notable policy shift, the Federal Reserve has joined other banking regulators in officially rolling back several crypto regulations established during the Biden administration. This decision, announced on Thursday, sees the Fed rescinding two key supervisory letters that previously required banks to inform the Fed ahead of engaging in crypto-related activities.
One of these letters dated back to 2022, while the other originated in 2023 and pertained specifically to dollar tokenization activities. Alongside this, the Fed, along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, cancelled joint guidance issued earlier this year on banks’ involvement in cryptocurrency operations.
The Fed’s statement indicated that these changes aim to align regulatory expectations with the evolving risks of the banking environment and to further promote innovation within the financial sector. The regulatory body also indicated a commitment to collaborating with other agencies to develop fresh guidelines for banks eyeing the crypto space.
The previously enforced policies had sparked considerable concern regarding crypto’s role as a vehicle for illicit activities, like scams and money laundering, and underscored the inherent volatility of digital assets. It also pointed out the minimal oversight that currently exists for decentralised financial systems.
Banks had been advised to maintain adequate liquidity in response to any potential runs on cryptocurrencies, thereby setting forth expectations regarding risk management and contingency strategies. This guidance was, in essence, viewed by many in both banking and crypto circles as tantamount to a prohibition on banking partnerships with crypto entities, as it theoretically allowed such practices but imposed burdensome compliance requirements.
With the withdrawal of these policies, it appears that bank regulators might be softening their stance on digital assets. Just last month, leaders from these regulatory bodies sought reforms to address the troubling trend of banks closing accounts belonging to crypto companies and individuals holding digital assets, a practice commonly known as account ‘de-banking.’
