Fed adds a new layer of bureaucracy for U.S. banks engaging in crypto asset activities

The United States Federal Reserve Board issued a letter Tuesday to its supervisory officers, staff and the banks they supervise regarding activities with crypto assets. The letter covers the preliminary steps a bank must go through before engaging in activities with crypto and instructs banks to notify the board before proceeding with those activities.

The letter, signed by the directors of the regulatory and community affairs divisions, applies to all banks supervised by the Fed with no threshold of minimum assets. It begins with a warning about the risks associated with crypto, specifically mentioning evolving technology and its governance, Anti-Money Laundering and transparency and the stability of assets such as stablecoin.

The Fed is monitoring banks’ activities, the letter noted:

“Given the heightened and novel risks posed by crypto-assets, the Federal Reserve is closely monitoring related developments and banking organizations’ participation in crypto-asset-related activities.”

It went on to remind banks that they need to make adequate risk management preparations for activities with crypto assets. It also recommended checking state and federal laws on the legality of their plans and required filings, mentioning the Bank Holding Company Act, the Home Owners’ Loan Act, the Federal Reserve Act and the Federal Deposit Insurance Act, in particular.

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The letter’s real call to action was the instruction that banks should notify their Fed supervisory contacts in advance of their planned activities with crypto. Banks that are already engaged in such activities should provide prompt retrospective notification so that they can receive feedback.

An accompanying statement said a statement on crypto asset policy was provided last year after an interagency “policy sprint” with the Federal Deposit Insurance Corporation (FDIC) Office of the Comptroller of the Currency (OCC).

The Fed letter comes on the heels of guidelines for reserve banks opening Federal Reserve accounts for “blockchain banks,” among other organizations.