The Federal Reserve plans to increase its monitoring of banks’ crypto-related activity


“Experts working alongside existing supervisory teams to oversee banks engaged in novel activities” will be part of the programme, which will be integrated into the way banks are already supervised.

The Federal Reserve has pledged to increase its oversight of crypto operations at US-licenced financial institutions.

The Federal Reserve’s action comes as part of its “novel activities supervision programme” unveiled on Tuesday, which targets developing asset classes like cryptocurrency. As an added bonus, it addresses distributed ledger applications that “may have far-reaching consequences for the entire financial system.”

An outline of the program’s goals says that officials will “enhance the supervision of novel activities” like “crypto-asset custody, crypto-collateralized lending, enabling crypto-asset trading, and issuing or distributing stablecoins or dollar tokens.”

Distributed ledger technology (DLT) and “technology-driven collaborations with nonbanks to provide financial services to customers” will also be a major feature of the programme.

The Federal Reserve stated in papers released on Tuesday that the programme is meant to guarantee that state member banks would “place controls to conduct the activity in a safe and sound manner.”

The Fed warned that “given the novelty” of emerging technologies like cryptocurrency, challenges “may not be effectively addressed by existing regulatory gets closer, and may raise issues for the broader financial system.”

Traditional financial institutions that facilitate specific crypto operations, such as lending, depositing, and making payments, fall within this remit of regulation as do blockchain-based enterprises. The tokenization process was also highlighted as a priority by the governing body.

In a statement, the Fed said that “programme specialists working alongside current supervisory teams to oversee banks performing novel activities” would be part of the program’s integration into existing supervision procedures.

To protect bank clients, banking organisations, and financial stability, “the Programme will help ensure that regulation and supervision allow for innovations that improve access to and the delivery of financial services,” the Fed said.

Exactly which businesses will fall under the stricter watch of the Federal Reserve was not immediately apparent.

The Fed has mandated that state member banks receive formal clearance before engaging in “payments activities as principal,” which includes the issuance, holding, and trading of dollar tokens utilising DLT or “similar technologies.”

On the banking side, the financial regulator said that all banks “supervised by the Federal Reserve,” even those with “less than $10 billion in consolidated assets,” would be subject to the program’s supervision. The categorization implied that not just large financial institutions like bulge-bracket banks would be included.

The document went on to say that the programme is “risk-based” and that the “level and intensity of supervision will vary based on the level of engagement in novel activities by each supervised banking organisation.”

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