The Federal Reserve has withdrawn various supervisory guidance materials outlining policies regarding cryptocurrencies and other digital tokens. The agency characterized the moves as necessary to ensure industry expectations align with evolving risks and further support innovation in the banking system.
The Fed announced it would rescind its 2022 supervisory letter establishing an expectation that state member banks provide advance notification of planned or current crypto-asset activities.
The supervisory letter stipulated, “Any supervised banking organization that is already engaged in crypto-asset-related activities should notify its lead supervisory point of contact at the Federal Reserve promptly regarding the engagement in such activities, if it has not already done so.”
Rather than expecting banks to notify the agency of such activities, the Fed said it plans to monitor banks’ crypto-asset activities through the normal supervisory process.
Additionally, the Fed rescinded its 2023 supervisory letter regarding the supervisory nonobjection process for state member bank engagement in dollar token activities.
The nonobjection process required state member banks to demonstrate they had established appropriate risk management practices to account for operational risks, cybersecurity risks, liquidity risks, illicit finance risks and consumer compliance risks associated with their proposed crypto-asset activities and exposures.
The Fed also joined with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency in withdrawing two jointly issued guidance statements published in 2023 regarding banks’ crypto-asset activities and exposures, including liquidity risks to banking organizations resulting from crypto-asset market vulnerabilities.
The banking agencies said effective risk management systems may include:
- “Understanding the direct and indirect drivers of potential behavior of deposits from crypto-asset-related entities and the extent to which those deposits are susceptible to unpredictable volatility.
- “Assessing potential concentration or interconnectedness across deposits from crypto-asset-related entities and the associated liquidity risks.
- “Incorporating the liquidity risks or funding volatility associated with crypto-asset related deposits into contingency funding planning, including liquidity stress testing and, as appropriate, other asset-liability governance and risk management processes.
- “Performing robust due diligence and ongoing monitoring of crypto-asset-related entities that establish deposit accounts, including assessing the representations made by those crypto-asset-related entities to their end customers about such deposit accounts that, if inaccurate, could lead to rapid outflows of such deposits.”
The Fed said it plans to work with its fellow banking agencies to consider whether additional guidance would be appropriate to support innovation, including crypto-asset activities.