The Federal Reserve today released guidelines for how it would evaluate requests from state-chartered but non-FDIC-insured financial institutions seeking to engage in novel activities, such as those involving cryptoassets. At the same time, the agency reiterated that such activities must be conducted in “a safe and sound manner.”
The policy statement came the same day the agency denied a request from the Wyoming-based digital asset firm Custodia Bank to become a member of the Federal Reserve System. The Fed said the firm does not have federal deposit insurance, and that it proposed to engage in “untested” crypto activities that “presented significant safety and soundness risks.” Custodia is one of several crypto firms and other novel payment companies that have received non-depository state charters and sought access to Fed master accounts without the structures applied to FDIC-insured banks. Last year, the American Bankers Association asked for the Fed to provide clarity on these charters.
In a statement, the Fed said it seeks to promote a level playing field for all banks with a federal supervisor, regardless of deposit insurance status. Still, supervised banks “will be subject to the same limitations on activities, including novel banking activities, such as crypto-asset-related activities,” according to the agency. In response to a number of inquiries from banks over the years about engaging in cryptoassets, the statement specifies how the Fed would evaluate such requests “consistent with longstanding practice.”
“Today’s action would not prohibit a state member bank, or prospective applicant, from providing safekeeping services, in a custodial capacity, for crypto-assets if conducted in a safe and sound manner and in compliance with consumer, anti-money laundering and anti-terrorist financing laws,” the Fed said.
White House Issues Crypto Regulation ‘Roadmap’
Also on Friday, the Biden administration laid out a roadmap for mitigating cryptocurrency risks, saying that it will prioritize digital asset research and call on Congress to pass legislation protecting consumers. In a statement, the White House called 2022 “a tough year for cryptocurrencies,” alluding to the implosion of the TerraUSD stablecoin in May and the later collapse of FTX. “Many everyday investors who trusted cryptocurrency companies—including young people and people of color—suffered serious losses, but, thankfully, turmoil in the cryptocurrency markets has had little negative impact on the broader financial system to date,” the White House said.
In coming months, the administration will also unveil priorities for digital asset research and development, “which will help the technologies powering cryptocurrencies protect consumers by default,” the White House said. It also urged Congress to expand regulators’ power to prevent misuse of customers’ assets and to mitigate conflicts of interest; strengthen transparency and disclosure requirements for cryptocurrency companies; strengthen penalties for violating illicit-finance rules and subject cryptocurrency intermediaries to bans against tipping off criminals; fund greater law-enforcement capacity building, including with international partners; and limit cryptocurrencies’ risks to the financial system by following the steps outlined by the Financial Stability Oversight Council in a recent report.