FED IMPOSES NEW ROADBLOCK ON BANKS’ CRYPTO ACTIVITIES

Today, the Fed announced a new procedural requirement for banks seeking to engage in crypto activities. Going forward, a bank must provide formal notice to its lead supervisory contact at the Fed “prior to engaging in any crypto-asset-related activity.” This notice requirement applies to all bank holding companies, savings and loan holding companies, and state-chartered member banks. The term “crypto-asset-related activity” includes, at a minimum, crypto-asset safekeeping and traditional custody services, ancillary custody services, facilitation of customer purchases and sales of crypto-assets, loans collateralized by crypto-assets, and issuance and distribution of stablecoins.

The new requirement is set forth in Supervisory Letter No. 22-6, which directs institutions to have “adequate systems, risk management, and controls to conduct crypto-asset-related activities in a safe and sound manner and consistent with applicable laws, including applicable consumer protection statutes and regulations” prior to engaging in any crypto activities. The Fed specifically calls out stablecoins, “if adopted at large scale,” as potentially problematic from a financial stability perspective.

The Fed’s action brings it in line with the OCC’s approach to crypto activities. Last November, the OCC announced that national banks must notify their OCC supervisory office prior to engaging in crypto activities, including those that the OCC had already confirmed are permissible, such as custody activities. Taken together, the Fed’s and OCC’s actions signify a much more difficult road ahead for those banks pursuing digital asset strategies.