The Federal Reserve has withdrawn four crypto-asset related advisories, including ones that required banks to inform the Fed of planned activities in advance or receive a non objection letter. The two other main federal banking regulators, the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) had already cancelled the requirements to get permission.
It follows a letter from Republican members of the U.S. House Financial Services Committee earlier this month requesting the withdrawal of the letters. They characterized the supervisory non objection process as a method to “stonewall financial institutions” and prevent them from engaging with distributed ledger technology (DLT). The FDIC’s responses to freedom of information requests, combined with the lack of services launched by banks, largely support this assertion.
Oversight will now happen through the normal Fed supervisory process. The Federal Reserve statement says, “the Board will work with the agencies (FDIC, OCC) to consider whether additional guidance to support innovation, including crypto-asset activities, is appropriate.”
“Today’s announcement from the Fed and FDIC is a welcome and important step toward achieving that goal and ensuring consumers can access these products and services through their trusted bank relationships,” said American Bankers Association President and CEO Rob Nichols. “We look forward to working with the Fed and FDIC in this fast-evolving marketplace.”
The withdrawn letters
The first withdrawn letter was issued in 2022 and required Board supervised banking organizations to notify the Federal Reserve prior to engaging in digital asset activities. The 2023 letter, SR 23-8 established a supervisory non objection process for state member banks involved with tokens using distributed ledger technology.
The withdrawal also included two joint 2023 letters issued by the Fed, FDIC and OCC that were more cautionary in nature. In fairness, their timing made sense. The crypto crash that followed the 2022 collapse of the Terra algorithmic stablecoin, resulted in the mass withdrawal of funds at Silvergate Bank, which alarmed the regulators. Shortly after these letters, Silicon Valley Bank collapsed, which was unrelated to crypto. However, there were assertions that the collapse of Signature Bank around the same time was partly related to crypto, an issue that bank executives disputed.
In addition to the banking regulators, the CFTC and SEC have also adopted different approaches to crypto under the new Trump administration. While the SEC took an extreme stance under the Biden administration, it remains to be seen whether the pendulum swings too far the other way. For example, the SEC washed its hands of supervising most meme coins. But some critics, including popular podcaster Joe Rogan, have expressed shock that meme coin pump and dump scams remain largely unregulated