The Federal Reserve (Fed) recently made an announcement that it will be shutting down its program that focused on additional scrutiny over crypto and fintech activities. In a statement released on August 15, the central bank revealed that it will be ending the Novel Activities Supervision Program and will instead monitor banks’ crypto and fintech activities through standard supervisory processes.
Initially established in August 2023, the specialized program was put in place to enhance oversight of banking organizations engaging in crypto activities, distributed ledger technology projects, and complex technology partnerships with non-banks. The program targeted activities that regulators deemed novel and potentially risky to financial stability.
According to the Fed, since the inception of the program, they have gained a better understanding of these activities, related risks, and bank risk management practices. The knowledge gained from the program will now be integrated into standard supervisory processes, with the 2023 supervisory letter that created the initiative being rescinded.
This decision by the Fed comes after several pro-cryptocurrency moves by federal regulators this year. On June 23, the Federal Reserve Board removed reputational risk from its bank supervision program, ordering staff to focus on measurable financial exposures rather than subjective standards like reputational risk.
Additionally, the Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corporation released a joint statement explaining how existing banking rules apply when institutions custody crypto for customers. The guidance emphasizes safekeeping and the importance of exclusive control of private keys and other sensitive data when it comes to crypto custody services.
Federal Reserve Chair Jerome Powell had laid the groundwork for this regulatory shift in an April 16 speech, where he advocated for a stablecoin framework and expressed the Fed’s willingness to accommodate responsible innovation in the banking sector. The end of the program signifies a broader normalization of crypto banking supervision as regulators gain confidence in their understanding of digital asset risks and develop clearer frameworks for institutional participation in crypto markets.
Overall, the Fed’s decision to shut down the Novel Activities Supervision Program reflects a shifting regulatory landscape that is more open to crypto and fintech activities, signaling a potential wave of innovation and collaboration in the financial sector.