Federal Reserve Strengthens Oversight of Crypto and Stablecoin Activities

The Federal Reserve has unveiled its initiative, the “Novel Activities Supervision Program,” aimed at fortifying its regulatory oversight over banks engaged in crypto and stablecoin operations. This move underscores the central bank’s recognition of the transformative potential of cryptocurrencies and distributed ledger technology while ensuring the stability and safety of the financial system.

The program centers on bolstering supervision across all banking organizations under its purview, with a specific focus on those participating in novel activities such as crypto, distributed ledger technology, and technology-driven partnerships with nonbanks for financial service delivery. The Federal Reserve acknowledges that innovations in these domains can give rise to unique risks that necessitate tailored regulatory approaches to maintain the soundness of banking organizations and the broader financial ecosystem.

A key highlight is that entities engaging in these novel activities will not be segregated into separate supervisory portfolios. Instead, the program will operate within existing supervisory frameworks, working alongside established supervisory teams. The central bank emphasizes that its goal is to facilitate regulatory and supervisory environments conducive to fostering innovative financial services while safeguarding the interests of customers, banking organizations, and financial stability.

Furthermore, the Federal Reserve acknowledges the importance of stablecoins in the evolving financial landscape. It provides guidance for state banks within its purview seeking to venture into stablecoin activities. These banks are advised to implement robust risk management practices spanning cybersecurity, liquidity, consumer compliance, and combating illicit finance risks.

This development aligns with ongoing efforts in the regulatory space, as the House Financial Services Committee advanced a comprehensive regulatory framework for stablecoins. Though bipartisan discussions encountered challenges, the Federal Reserve’s proactive stance reaffirms its commitment to comprehensively addressing the regulatory implications of stablecoins.

Read more: The Block