Fed Ends Special Crypto Oversight Program, Shifts to Standard Bank Supervision

The U.S. Federal Reserve has officially ended its specialized oversight program for banks engaging in cryptocurrency and fintech activities, integrating these responsibilities into standard bank supervision [1][3]. The initiative, launched in 2023, aimed to provide the Fed with a deeper understanding of the risks and management practices associated with emerging financial technologies [3]. After two years of focused monitoring, the central bank has concluded that it now has sufficient insight to incorporate these activities into its regular supervisory process [3].

As part of the transition, the Fed has withdrawn the supervisory letter that established the program, signaling a shift in regulatory approach [3]. This move reflects growing confidence in the ability of traditional oversight mechanisms to address crypto-related activities without the need for a dedicated, specialized framework [3]. The change may also encourage more banks to consider partnerships with crypto firms, as the sector is no longer seen as experimental or excessively risky [3].

The decision has been interpreted as a signal that regulators now view crypto and fintech as mature enough to be handled within standard banking frameworks [1]. However, some analysts caution that the absence of a specialized program may reduce the focus on emerging risks, such as those associated with decentralized finance (DeFi) products or complex custody solutions [3]. This could potentially create gaps in risk detection if traditional oversight mechanisms fail to adapt quickly to the pace of innovation in the crypto space [3].

The Fed’s move has received mixed reactions from the digital asset community. On one hand, it is seen as a step toward normalization, possibly improving access to banking services for exchanges and blockchain projects [3]. On the other, the removal of heightened scrutiny raises questions about the depth of oversight for rapidly evolving financial innovations [3].

The decision to fold crypto supervision into standard processes comes after the Fed successfully completed its two-year monitoring period, during which it assessed the risk profiles and control systems of banks involved in crypto activities [1]. This transition does not reflect a diminished concern for crypto-related risks, but rather an assessment that conventional supervisory tools are now sufficient to manage those risks [3].

The shift could influence the broader regulatory landscape by setting a precedent for how other jurisdictions might approach the integration of digital assets into traditional financial systems. However, the long-term success of this approach will depend on whether existing oversight frameworks can effectively keep pace with the fast-moving developments in the crypto sector [3].

Source:

[1] Federal Reserve Board announces it will sunset its novel activities supervision program and return to monitoring banks' novel activities through the normal

(https://news.google.com/home?ceid=US:en&gl=US&hl=en-US&pz=1&tab=nn)

[3] Federal Reserve to End Special Oversight of Crypto and

(https://cryptodnes.bg/en/federal-reserve-to-end-special-oversight-of-crypto-and-fintech-bank-activities/)