Federal Reserve withdraws crypto-unfriendly banking guidance

The Federal Reserve has officially withdrawn its previous crypto-unfriendly banking guidance, marking a significant shift in the regulatory approach toward cryptocurrency activities by banks.

This move involves rescinding several key supervisory letters and joint statements issued in 2022 and 2023 that had imposed restrictions and cautionary measures on banks engaging with crypto-assets and stablecoins.

The Fed rescinded its 2022 supervisory letter that required state member banks to provide advance notification to the Federal Reserve before engaging in any crypto-asset activities. This notification requirement is now eliminated, and crypto activities will be monitored through the Fed’s normal supervisory process instead.

The 2023 supervisory letter related to the supervisory non-objection process for banks engaging in stablecoin or dollar token activities was also withdrawn, removing the need for prior regulatory approval for such activities.

The Fed withdrew two joint statements from 2023 that had warned banks about risks such as fraud, volatility, legal uncertainties, and liquidity challenges associated with crypto activities.

This collective withdrawal by the three main U.S. banking regulators signals a unified shift toward a more innovation-friendly and integrated supervisory framework for crypto and stablecoin activities within the banking sector.

The rescinded guidance had initially flagged crypto-assets, especially stablecoins, as potential risks to financial stability, consumer protection, and the safety and soundness of the financial system. It also highlighted concerns about money laundering and counter-terrorism financing risks.

The withdrawal aligns with the Trump administration’s broader initiative to roll back restrictions and foster a more crypto-friendly regulatory environment, aiming to support innovation in the U.S. financial sector.

With the removal of these prior constraints, banks now have greater freedom to offer crypto-related services without needing advance regulatory approval, placing more responsibility on banks’ management and compliance teams to manage risks.

The Federal Reserve and other regulators indicated they will consider whether new guidance is needed to support innovation while balancing risk, suggesting a future regulatory framework that is more adaptive to the evolving crypto landscape.

The Federal Reserve’s withdrawal of crypto-related banking guidance removes previous regulatory barriers, signaling a significant shift toward integrating crypto activities into standard bank supervision and encouraging innovation in the crypto banking space in the United States.

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