FRB Issues Guidance for Regulated Banking Organizations Engaging in Crypto-Asset Activities | Practical Law

FRB Issues Guidance for Regulated Banking Organizations Engaging in Crypto-Asset Activities | Practical Law

The Federal Reserve Bank (FRB) issued guidance for regulated banking organizations engaging in or seeking to engage in crypto-asset related activities, emphasizing that such organizations must notify the FRB before engaging in these activities and must confirm that their proposed activities are legally permissible within the federal banking system.

FRB Issues Guidance for Regulated Banking Organizations Engaging in Crypto-Asset Activities

by Practical Law Finance
Published on 17 Aug 2022 • USA (National/Federal)
The Federal Reserve Bank (FRB) issued guidance for regulated banking organizations engaging in or seeking to engage in crypto-asset related activities, emphasizing that such organizations must notify the FRB before engaging in these activities and must confirm that their proposed activities are legally permissible within the federal banking system.
On August 16, 2022, the Federal Reserve Board (FRB) issued a supervisory letter addressed to each Federal Reserve Bank and all banking organizations supervised by the FRB emphasizing that FRB-supervised banking organizations should notify their lead supervisory point of contact at the FRB before engaging in crypto-asset-related activities, including:
  • Crypto-asset safekeeping and traditional custody services.
  • Ancillary custody services.
  • Facilitation of customer purchases and sales of crypto-assets.
  • Making loans collateralized by crypto-assets.
  • Issuing and distribution of stablecoins.
The letter also states that, before engaging in crypto-asset-related activities, an FRB-supervised banking organization:
  • Must ensure such crypto-related activity is legally permissible and determine whether any filings are required under applicable federal or state laws.
  • Should have in place adequate systems, risk management, and controls to conduct such activities in a safe manner and consistent with all applicable laws, including applicable consumer protection statutes and regulations.
The letter applies to all banking organizations supervised by the FRB, including those with $10 billion or less in consolidated assets.
According to the FRB supervisory letter, a crypto-asset refers to any digital asset implemented using cryptographic techniques, and the letter does not address the legal permissibility of any specific crypto-asset-related activity.
The FRB notes that the emerging crypto-asset sector presents potential opportunities for banking organizations, their customers, and the overall financial system. However, the FRB notes that crypto-asset-related activities may also pose risks related to the safety and soundness of the financial system, consumer protection, money laundering, and terrorist financing. According to the FRB, given these heightened and novel risks, the FRB is closely monitoring related developments and banking organizations’ participation in crypto-asset-related activities.
The FRB letter states that it is a follow-up to a November 23, 2021 interagency statement issued by the FRB, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC) (see Legal Update, Federal Banking Agencies Issue Joint Statement on Crypto-Asset Policy and OCC Issues Interpretive Letter on Bank Cryptocurrency Activities).