Federal Reserve provides guidance for banks considering crypto activities

Representations of cryptocurrency Bitcoin and the US dollar are seen in this illustration, August 10, 2022. REUTERS/Dado Ruvic/

WASHINGTON, Aug 16 (Reuters) – The U.S. Federal Reserve on Tuesday issued additional guidance for banks considering activities involving cryptocurrencies, stressing that firms must notify the Fed in advance and ensure that anything they do is legally permissible.

The Fed said in a statement that while cryptocurrencies could present “potential opportunities” for banks, firms needed to ensure they had systems in place beforehand to ensure the volatile assets did not threaten safety and soundness or consumer protection.

Banks should also notify the Fed before engaging in crypto-related activities, and any banks that have already pursued crypto initiatives should also notify the Fed of their involvement in the digital asset space, the agency said.

The Fed also urged state member banks to notify their state regulator before becoming involved in crypto activities.

The Fed said in the supervisory letter that banks under the agency’s supervision should take several steps before engaging in crypto-related activities, including determining whether existing laws dictated any special registrations and whether the activities under review were legally permissible.

Banks should also have adequate risk management systems and controls in place before becoming involved in crypto to ensure that all endeavors were conducted in a safe and sound manner and complied with relevant consumer protection laws, the Fed said.

The move comes just days after several Democratic senators led by Massachusetts Senator Elizabeth Warren called on the US Office of the Comptroller of the Currency (OCC) to withdraw its previously issued guidance on crypto and replace it with “a comprehensive approach in coordination with other supervisory authorities”.

Last year, US banking regulators including the Fed and the OCC jointly said they intended to clarify by 2022 what kinds of activities banks could engage in involving crypto, including whether firms were able to hold digital assets on their balance sheets and facilitate crypto trading on behalf of the customers. read more

Reporting by Pete Schroeder and Hannah Lang in Washington; Editing by Chris Reese and Alex Richardson

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