tl;dr
The Federal Reserve is ending its Novel Activities Supervision Program, launched in August 2023 to oversee banks involved in cryptocurrency and fintech. With enhanced understanding of crypto risks, the Fed will incorporate these insights into standard supervisory processes and rescind the program's ...
The Federal Reserve (Fed) announced it will terminate its Novel Activities Supervision Program, which was created in August 2023 to increase oversight of banks engaged in cryptocurrency and fintech activities. This specialized program was designed to monitor novel and potentially risky banking operations involving crypto, distributed ledger technologies, and complex partnerships with non-bank entities.
According to the Fed, the program enhanced its understanding of crypto-related risks and risk management within banks. With this improved comprehension, the Fed plans to integrate the insights gained into its standard supervisory processes and rescind the 2023 supervisory letter that established the program.
This move aligns with a series of regulatory adjustments this year aimed at facilitating clearer, more measured oversight of crypto activities. Notably, the Fed removed “reputational risk” from its bank supervision criteria to focus on quantifiable financial risks, following similar actions by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC). Experts see this as a positive shift that could reduce barriers for banks to offer crypto services.
Additionally, banking regulators jointly clarified how existing rules apply to crypto custody, emphasizing safekeeping as holding digital assets exclusively for clients without introducing new supervisory demands. Banks must demonstrate that no other party can move assets independently once held in custody, ensuring security through control of private keys and sensitive data.
Fed Chair Jerome Powell signaled this regulatory evolution earlier in April, advocating for a stablecoin framework and affirming the Fed's intent not to impede legitimate bank-crypto relationships. He acknowledged initial conservatism following the 2022 market turmoil but hinted at greater openness to responsible innovation.
The conclusion of the specialized supervision program marks a significant step toward the normalization of crypto banking oversight, reflecting regulators’ growing confidence in managing digital asset risks and fostering clearer participation rules for institutions in the crypto market.