Fed Ends Special Crypto Oversight Program Returning to Standard Supervision

The U.S. Federal Reserve announced on August 15, 2025, that it will dismantle its targeted oversight program for crypto and fintech activities, returning these functions to standard supervisory procedures [1]. The decision effectively ends the Novel Activities Supervision Program, which had been introduced in August 2023 via Supervisory Letter SR 23-7 [1]. The program had focused on activities such as crypto custody, stablecoin issuance, tokenized assets, and bank collaborations with non-banks through APIs. By rescinding this initiative, the Fed signals a shift toward integrating digital asset oversight into its broader regulatory framework, rather than applying a separate, heightened scrutiny model.

The Fed’s announcement emphasized that its understanding of crypto-related risks and bank risk management practices had evolved sufficiently to allow for a return to normal supervisory procedures [1]. This marks a departure from the earlier approach, which had drawn criticism from lawmakers and industry stakeholders for being overly burdensome and potentially stifling innovation [1]. Senator Cynthia Lummis praised the move as a “big win” for digital asset advocates, calling it progress toward fair treatment of crypto businesses [1]. The House Financial Services Committee also welcomed the decision, noting that it aligns with efforts to integrate digital assets into the prudential regulatory framework.

While some regulatory experts have expressed concerns that the move could weaken risk management as fintech adoption accelerates, digital asset proponents argue that the Fed’s decision is necessary to foster innovation and regulatory parity [1]. The Fed’s decision was made without a public hearing or extended public comment period, a departure from typical regulatory processes, which has led to calls for the decision being described as a “quiet bomb drop” on banking supervision [1]. This lack of public engagement may raise questions about the transparency of the Fed’s regulatory approach.

The timing of the announcement is notable, as it comes amid broader global regulatory shifts. In recent weeks, China has intensified its crackdown on crypto activities, contributing to market volatility [5]. In the U.S., the Fed had previously been seen as a key force in shaping the future of digital asset regulation. Its withdrawal from the crypto crackdown may shift regulatory responsibility to other agencies, such as the SEC and CFTC, creating potential for a more fragmented regulatory landscape.

The decision reflects a pragmatic approach to managing the complexities of regulating a rapidly evolving and decentralized asset class. While the Fed has not provided detailed reasoning beyond a general emphasis on regulatory coherence, the move indicates a reassessment of priorities in the face of unclear legislative frameworks and the dynamic nature of the crypto market [1]. This development may influence future policy directions as the industry continues to seek clearer and more inclusive regulatory standards.