Is the U.S. Federal Reserve Monitoring Crypto Activities in Banks?

The U.S. Federal Reserve has recently initiated a new program to keep tabs on the crypto activity in U.S. banks. This move doesn’t introduce new regulations for cryptocurrency banking, rather it outlines how the central bank plans to conduct its supervision, placing transactions with the crypto sector under the newly-formed “novel activities supervision program”.

A New Oversight Approach

The Federal Reserve’s new program is intended to oversee banks’ involvement in cryptocurrency. The aim is not to modify existing rules regarding cryptocurrency banking but to define the central bank’s approach to its supervisory role. This involves incorporating dealings with the crypto sector into the new “novel activities supervision program”.

Under this program, the Fed’s experts in digital assets will work hand-in-hand with the regulator’s regular supervisors. This collaborative effort will ensure that banks’ cryptocurrency activities are properly monitored and regulated.

Pre-Approval for Crypto Operations

The Fed has also provided a more detailed explanation of the need for banks under its supervision to obtain pre-approvals for crypto operations. A bank that plans to “issue, hold, or transact in dollar tokens to facilitate payments” must first demonstrate to the supervisors that it can do so in a “safe and sound manner”. Only after obtaining formal approval from the Fed can it proceed.

Reinforcing Previous Crypto Guidance

The central bank’s announcements are intended to bolster the cryptocurrency guidance it issued earlier in the year. This comes shortly after PayPal announced its plans to launch its own stablecoin, a clear indication of the growing significance of cryptocurrencies in the financial sector.

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