Fed Withdraws Crypto Guidelines, Paving the Way for Banks to Engage Deeper in Digital Assets
The decision to withdraw four advisory documents opens the way for banks to participate in the digital asset market without prior notification, marking an important shift in crypto regulation policy.
The Federal Reserve has taken a significant step by withdrawing four advisory documents related to crypto-assets, including requirements for banks to provide prior notification or receive a non-objection letter before implementing crypto activities. This decision follows similar actions by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC).
Pressure from Republicans and Innovation Potential
This move came after Republican members of the United States House Committee on Financial Services sent a letter requesting the Fed to withdraw the guidelines. They argued that the non-objection letter supervision process was becoming a tool to "prevent financial institutions" from participating in Distributed Ledger Technology (DLT). This argument was reinforced by the FDIC's response to information freedom requests, as well as the fact that very few related services have been deployed by banks.
Instead of a separate process, crypto activities will be supervised through the Fed's standard oversight process. In an official statement, the Fed said: "The Board will coordinate with other agencies to consider issuing additional guidance to support innovation, including activities related to crypto-assets, if deemed appropriate."
Rob Nichols, President and CEO of the American Bankers Association (ABA), assessed this as "an important and welcome step" to ensure consumers can access crypto products and services through reliable banking relationships.
The withdrawn documents include a letter from 2022 requiring banking institutions to notify before participating in digital asset activities, and a 2023 letter (SR 23-8) establishing a non-objection letter supervision process for state member banks related to tokens using DLT. Additionally, there were two other joint letters with a warning nature issued in 2023 by the Fed, FDIC, and OCC.
In context, the timing of these letters could be considered reasonable after the collapse of the Terra Algorithmic Stablecoin in 2022 and major market volatilities. However, under the new Trump administration, regulators are trending towards changing their approach. While the SEC under Biden had previously adopted an extremely rigid stance, it remains unclear how the policy will develop, especially as the SEC has almost abandoned oversight of most meme coins, raising concerns about pump and dump fraud risks.
