Federal Reserve Lifts Crypto Pre-Approval Rules for Banks

The Federal Reserve has lifted its pre-approval rules for banks looking to enter the cryptocurrency space, marking a significant shift in the regulatory landscape for digital assets in the United States. Effective April 24, 2025, banks are now free to offer crypto services without seeking prior consent from the Federal Reserve. This move aligns with recent policy changes by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), which have also rescinded their crypto guidance.

Previously, the Federal Reserve had imposed restrictions that prohibited banks from engaging in cryptocurrency and stablecoin activities without obtaining approval. The new policy reverses a 2022 supervisory letter that required banks to notify regulators before engaging in crypto business, as well as a 2023 letter that imposed similar restrictions on stablecoin activities. The Federal Reserve's announcement stated, “The Board is rescinding its 2022 supervisory letter establishing an expectation that state member banks provide advance notification of planned or current crypto-asset activities.”

This regulatory change removes a significant barrier for banks looking to offer crypto services such as custody, trading, or stablecoin issuance. Previously, the need for pre-approval had deterred many banks from entering the crypto space due to the associated risks. The new policy allows banks to supervise these digital asset activities in the same way they would any other banking service, on a normal basis.

The move is part of a broader effort to integrate digital assets into traditional finance. Crypto banks such as Custodia and Kraken Financial have long sought greater access to Federal Reserve services, including master accounts. The new policy could enable such institutions to expand their range of services, potentially leading to increased innovation and competition in the financial sector.

The adoption of cryptocurrency by more conventional banks is likely to accelerate as a result of this regulatory change. Banks can now create crypto-related products without going through a pre-clearance process, which could increase liquidity in digital currency markets. This transition occurs within a more favorable regulatory framework established by the administration, which is seen as moving toward fulfilling the guarantees made in the battle to evade banks from restrictions for blockchain.

However, banks that engage in crypto activities will still be monitored. The Federal Reserve has stated that standard supervisory processes will be used to ensure that existing rules are followed, suggesting a balance between innovation and risk management. This approach aims to avoid potential financial crises while fostering growth in the crypto sector.

The relaxed rules are expected to benefit smaller banks and fintechs the most, as they will now be able to compete with larger institutions in offering crypto services. This could lead to the development of new products such as crypto custody solutions or blockchain-based payment systems. The move also aligns with efforts to build a national strategic bitcoin reserve, as states become more aware of the legislative value of digital assets.

Overall, the Federal Reserve's decision to lift pre-approval rules for banks entering the crypto space is a significant step toward integrating digital assets into traditional finance. This regulatory change is expected to foster innovation, increase competition, and promote the growth of the crypto sector, while also ensuring that banks operate within a framework that balances risk and opportunity.