US Crypto & Public Policy Watch — Fed To Banks: High Bar To Secure Permission For Crypto-Related Activities
The Federal Reserve Board has issued a policy statement aimed at all banks with a federal regulator, making clear that uninsured and insured banks — referred to as state member banks (SMBs) — supervised by the Fed Board are subject to the same limitations on activities, including offering crypto-asset-related services.
“The Board would presumptively prohibit SMBs from holding most crypto-assets as principal, and also would provide that any SMB seeking to issue a dollar token would need to demonstrate, to the satisfaction of Federal Reserve supervisors, that the bank has controls in place to conduct the activity in a safe and sound manner, and to receive a Federal Reserve supervisory non-objection before commencing such activity,” it said.
The policy statement also reiterated that legal permissibility alone is not enough to allow a SMB to engage in crypto activities, and that “an SMB must at all times conduct its business and exercise its powers with due regard to safety and soundness.”
This means that banks must both ensure that their activities are allowed under the law, and conduct their business in a safe and sound manner. “For instance, a bank should have in place risk management processes, internal controls, and information systems that are appropriate and adequate for the nature, scope, and risks of its activities,” the Fed said.
In addition, banks supervised by the Board are also subject to the limitations on certain activities imposed on national banks — who are supervised by the Office of the Comptroller of the Currency. “The equal treatment will promote a level playing field and limit regulatory arbitrage,” the Fed said.
The Fed’s move comes in response to what it described as “a number of inquiries, notifications, and proposals from banks regarding potential engagement in novel and unprecedented activities, including those involving crypto-assets.”
The intent of this policy statement is to specify how it will evaluate such inquiries.
“Today’s action would not prohibit a state member bank, or prospective applicant, from providing safekeeping services, in a custodial capacity, for crypto-assets if conducted in a safe and sound manner and in compliance with consumer, anti-money laundering, and anti-terrorist financing laws,” the Fed said.