The Federal Reserve today released guidelines on how it would evaluate applications from state-licensed but non-FDIC-insured financial institutions seeking to engage in novel activities, such as those involving crypto assets. At the same time, the agency reiterated that such activities must be carried out in a “safe and sound manner.”
The policy statement The agency arrived the same day denied a request of Wyoming-based digital asset firm Custodia Bank to become a member of the Federal Reserve System. The Fed said the company does not have federal deposit insurance and that it proposed to engage in “unproven” cryptographic activities that “presented significant security and robustness risks.” Custodia is one of several cryptocurrency and other startup payment companies that have received state non-depository statutes and have sought access to Fed master accounts without the structures applied to FDIC-insured banks. Last year, the American Bankers Association asked about the fed to provide clarity on these statutes.
In a statement, the Fed said it seeks to promote a level playing field for all banks with a federal supervisor, regardless of deposit insurance status. Still, supervised banks “will be subject to the same limitations on activities, including novel banking activities such as activities related to crypto assets,” according to the agency. In response to a number of inquiries from banks over the years about holding crypto assets, the statement specifies how the Fed would evaluate such requests “in accordance with long-standing practice.”
“Today’s action would not prohibit a state member bank, or potential applicant, from providing custody services, in a custodial capacity, for crypto assets if it is carried out securely and in compliance with consumer, anti-laundering standards. of money and against terrorist financing laws,” the Fed said.
White House Issues ‘Roadmap’ for Crypto Regulation
Also on Friday, the Biden administration filed a roadmap to mitigate cryptocurrency risks, saying that he will prioritize the investigation of digital assets and ask Congress to pass legislation that protects consumers. In a statement, the White House called 2022 “a difficult year for cryptocurrencies,” alluding to the implosion of the TerraUSD stablecoin in May and the subsequent collapse of FTX. “Many everyday investors who put their trust in cryptocurrency companies, including young people and people of color, suffered heavy losses, but fortunately, the turmoil in the cryptocurrency markets has had little negative impact on the broader financial system to date. the White House said.
In the coming months, the administration will also unveil priorities for research and development of digital assets, “which will help the technologies that power cryptocurrency protect consumers by default,” the White House said. He also urged Congress to expand the power of regulators to prevent misuse of client assets and mitigate conflicts of interest; strengthen transparency and disclosure requirements for cryptocurrency companies; strengthen penalties for violating illicit financing rules and subject cryptocurrency intermediaries to bans against criminals; Fund further law enforcement capacity building, including with international partners; and limit the risks of cryptocurrencies to the financial system by following the steps outlined by the Financial Stability Oversight Board in a recent report.