FSOC Shifts Crypto Focus to Growth, Citing New Federal Framework and Bank Guidance

The Financial Stability Oversight Council (FSOC) has significantly softened its stance on cryptocurrencies in its 2025 annual report. This marks a departure from previous years, where the council repeatedly highlighted digital assets as a potential threat to financial stability. The 2025 report removes digital assets from the list of systemic vulnerabilities, signaling a shift in regulatory priorities. Instead, the report now frames crypto as a growing sector with increasing institutional participation according to analysis.

The change comes amid new legislative and regulatory developments, including the enactment of the GENIUS Act in July 2025. This law created a federal framework for payment stablecoin issuers, providing a clearer path for innovation while maintaining financial stability. The FSOC also noted that federal banking agencies have issued new guidance allowing banks to engage in crypto-related activities without prior approval for certain actions.

In its 2025 report, the FSOC emphasized that the regulatory landscape had evolved, with crypto assets no longer seen as a systemic risk. The council pointed to improved oversight, including reserve requirements and disclosure mandates for stablecoins, as key reasons for the shift. The report highlighted how the GENIUS Act had brought stability to the market by providing a federal framework for stablecoin issuers according to market analysis.

Why the Regulatory Shift Occurred

The shift in tone from alarmist to measured can be attributed to a combination of legislative action and changing political attitudes. The GENIUS Act provided regulators with a concrete legal structure, reducing the perceived risks associated with stablecoins. Additionally, the Trump administration's pro-crypto stance played a role in reshaping the regulatory approach. Yan Ketelers, CMO at human.tech, noted that the change was not due to a decrease in risk but a transition from existential concerns to more manageable ones.

The report also acknowledged the integration of crypto into the broader financial system. It no longer expressed concerns about stablecoins being vulnerable to runs, as it had in the 2024 edition according to industry reports. Instead, the focus shifted toward ensuring compliance with anti-money laundering (AML) and anti-terrorism financing (CTF) obligations according to regulatory analysis.

Global and Institutional Implications

The U.S. regulatory shift has global implications, particularly in contrast to Europe, where regulators remain cautious about the systemic risks of crypto according to international reports. The UK, however, is aligning with the U.S. approach, planning to regulate crypto assets by 2027 according to government statements. This shift supports U.S. global financial influence and positions the country as a leader in crypto innovation according to market observers.

Domestically, federal regulators have taken steps to normalize institutional participation in crypto markets. The Office of the Comptroller of the Currency (OCC) issued guidance allowing national banks to act as intermediaries in riskless crypto trades and permitting them to hold small amounts of native tokens for operational needs. Additionally, the SEC rescinded prior guidance that required custodial crypto assets to be recorded as liabilities on bank balance sheets.

What Analysts Are Watching

Analysts are closely monitoring how this new regulatory framework affects market behavior and risk distribution. Ketelers pointed out that while regulation has brought clarity, it has not eliminated risk. Instead, the risks have shifted from stablecoin balance sheets to areas like custody, identity, and interfaces. These are areas where past crypto failures often originated according to industry experts.

The FSOC also downplayed concerns about illicit finance compared to previous years. It noted that the majority of on-chain transactions are now associated with legitimate activity, although it called for continued enforcement against criminal misuse. This contrasts with the 2024 report, which cited widespread governance failures and crypto-related fraud losses.

Risks to the Outlook

Despite the regulatory shift, several risks remain. Global watchdogs such as the FATF and the Financial Stability Board (FSB) continue to highlight the risks of fragmented regulation and illicit finance. The FSB has noted that while current risks are limited, they could rise with increased interconnectedness and stablecoin usage according to FSB analysis.

The U.S. regulatory environment is also not immune to political shifts. The 2026 election could bring policy changes that affect crypto's trajectory. Additionally, international regulatory coordination is expected to tighten on AML and cross-border flows, regardless of the U.S. shift in stance according to global financial analysts.

The 2025 FSOC report reflects a broader shift in the regulatory approach to crypto, emphasizing integration and growth rather than containment. While systemic risks are no longer highlighted, the focus remains on managing existing risks through existing supervisory tools. Whether this approach holds as the market evolves will depend on how well the new regulatory framework performs during the next major market stress test.