The U.S. Federal Reserve has launched a fresh approach to monitor banks’ involvement in the cryptocurrency sector. On Tuesday, they unveiled this strategic direction. It aims not to alter crypto banking regulations but to elucidate their supervisory intentions.
Introducing the “Novel Activities Supervision Program”
This initiative positions cryptocurrency interactions under the “novel activities supervision program.” The Fed’s elite digital asset experts will collaborate closely with the standard regulatory supervisors.
Taking a step further, the Federal Reserve provided a more detailed breakdown concerning banks dealing with stablecoins. Any institution venturing into “issuing, holding, or transacting in dollar tokens for payments” must first acquire approval. They must showcase their capability to operate these activities ” safely and soundly.”
Gaining this approval isn’t a walk in the park. Banks must highlight their proficiency in “measuring, identifying, monitoring, and controlling risks.” Moreover, the Federal Reserve will meticulously inspect potential vulnerabilities, such as susceptibility to money laundering, risks from hackers, and customer runs.
These latest announcements serve as an enhancement to the crypto directives released in January. This revelation closely followed after PayPal declared its intentions to introduce its brand of stablecoin.
The Clear Federal Reserve Demarcation: Traditional Banking vs. Crypto Sector
During this tenure, U.S. banking regulators have consistently voiced their intention. They aim to establish a prominent boundary between conventional banking systems and the burgeoning crypto sector. Nevertheless, they encourage banks to explore this realm, albeit under their vigilant watch. The “novel activities” initiative will notify banks when their digital asset interactions are up for evaluation. As the Federal Reserve conveyed, “The degree of oversight will differ based on each bank’s involvement in these innovative activities.”
Concluding their announcement, the Federal Reserve expressed optimism. Their latest program aspires to “foster innovations enhancing both access and delivery of financial services.”
In summary, as the world of finance evolves with the rise of digital currencies, institutions like the Federal Reserve are taking calculated steps to ensure a smooth and secure transition for all stakeholders.