The U.S. Federal Reserve announced on Tuesday that it has established a new program to enhance its supervision of banks’ crypto activities, as well as clarified its expectations for state banks that want to engage with stablecoins.
Novel Activities Supervision Program
The Novel Activities Supervision Program (NASP) is a new initiative by the Fed to strengthen its oversight of novel and emerging activities related to digital assets by the banks under its authority.
According to the Fed’s letter, the NASP will help the Fed identify, assess, and monitor the risks and benefits of such activities, as well as coordinate with other regulators and stakeholders.
The Fed said that the NASP will cover a wide range of activities, such as:
- Issuing, holding, or transacting in digital assets or stablecoins
- Providing custody, exchange, or brokerage services for digital assets or stablecoins
- Participating in decentralized finance platforms or protocols
- Using distributed ledger technology or smart contracts for payment or settlement purposes
- Offering products or services related to central bank digital currencies
The Fed said that it expects banks to notify their supervisory teams before engaging in any of these activities, and to provide relevant information and documentation.
Stablecoin Guidance
The Fed also issued a separate letter
Stablecoins are digital tokens that are designed to maintain a stable value by being backed by fiat currencies or other assets.
The Fed said that SMBs that want to engage with stablecoins must obtain prior approval from the Fed, and demonstrate that they have adequate risk management and compliance frameworks in place.
The Fed said that it will evaluate SMBs’ proposals based on several factors, such as:
- The nature and scope of the proposed activity
- The potential impact on the SMB’s safety and soundness, financial stability, and monetary policy
- The alignment with applicable laws, regulations, and supervisory guidance
- The adequacy of the SMB’s governance, risk management, internal controls, compliance, audit, and reporting systems
- The availability of sufficient capital, liquidity, and operational resources to support the activity
The Fed also said that it expects SMBs to monitor and report on their stablecoin activities on an ongoing basis, and to cooperate with the Fed and other regulators.
Implications for the Crypto Industry
The Fed’s announcement is the latest move by U.S. regulators to increase their scrutiny of the crypto industry, as digital assets become more mainstream and pose new challenges and opportunities for the financial system.
The Fed’s new program and guidance do not represent a departure from its previous policy stance, but rather provide more details and clarity on what it expects from banks that want to participate in the crypto space.
Some crypto advocates may welcome the Fed’s initiative as a sign of recognition and legitimacy for the industry, while others may view it as a potential barrier or threat to innovation and competition.
The Fed’s announcement also comes amid growing interest and speculation about the possibility of a U.S. central bank digital currency (CBDC), which could have significant implications for the future of money and payments.
