The Federal Reserve made a significant move on Friday by discontinuing a two-year-old supervisory program that was specifically designed to monitor banks’ involvement in cryptocurrencies. This decision marks a shift towards a more relaxed approach to overseeing crypto activities within the banking sector, with the central bank opting to integrate this task back into its regular supervisory process.
The Novel Activities Supervision Program was initially established during the tenure of Vice Chairman Michael Barr, who was appointed as the board’s supervision chief by former President Joe Biden. However, the Fed has now decided to sunset the program and focus on monitoring banks’ innovative activities through its standard supervisory procedures.
This move aligns with the trend observed among other banking regulators, including the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., who have also scaled back their scrutiny of digital assets. In April, the Federal Reserve withdrew its previous crypto guidance, which required banks to seek approval from government supervisors before engaging in new crypto-related activities.
The rationale behind the novel-activity program was to provide the Fed with specialized expertise and a closer examination of the risks that emerging technologies, such as cryptocurrencies, could pose to the banking system. However, after two years of operation, the Fed has reportedly enhanced its understanding of these activities, associated risks, and bank risk management practices. As a result, the decision was made to integrate this oversight back into the regular supervisory process.
The crypto industry and U.S. banking regulators have experienced a tumultuous period in recent years, with digital assets firms and industry insiders facing challenges in accessing banking services. This situation led to complaints of an orchestrated effort by government entities to restrict their access to financial services, a campaign that has been dubbed Operation Chokepoint 2.0 by industry stakeholders and their allies in Congress.
However, the appointment of crypto-friendly officials by former President Donald Trump has signaled a shift in regulatory approach, with a focus on enabling banks to make their own decisions regarding crypto activities under existing risk-management expectations. While the Federal Reserve is committed to maintaining its independence, it has followed the lead of other regulatory bodies in easing constraints on crypto-related activities.
Overall, the decision to discontinue the Novel Activities Supervision Program reflects a broader trend towards a more permissive regulatory environment for cryptocurrencies within the U.S. banking sector. This move is likely to have implications for how banks engage with digital assets and innovative technologies moving forward.