The U.S. Federal Reserve has issued additional guidance for banks considering or already engaged in activities involving crypto assets. The central bank emphasized in the guidelines that firms must notify the Fed, alert their state regulator beforehand, and make sure what they do is legally permitted.
This move comes after several Democratic senators, and Massachusetts Sen. Elizabeth Warren called the OCC to rescind its previously issued guidance on crypto and replace it with "a comprehensive approach in coordination with other prudential regulators."
Last year, U.S. banking regulators, including the OCC and the Fed, jointly said that they intend to clarify on kind of activities banks could engage in involving crypto as well as whether firms were able to facilitate crypto trades on behalf of customers and hold digital assets on their balance sheet.
Now, on Tuesday, the Fed said it is publishing its latest guidance. While crypto could offer "potential opportunities" to banks, firms need to have systems in place to ensure they do not threaten safety and soundness or consumer protections, the Fed said in a statement.
As per the supervisory letter, banks supervised by the agency should take several steps before engaging in activities involving crypto, including determining if existing laws dictated any particular filings and if activities under consideration were legally permissible.
Banks should further have adequate risk management systems and controls in place in order to ensure that any endeavors were conducted safely and soundly and were in compliance with consumer protection rules, added the Fed.
The central bank has also published guidance for financial institutions to access its "master accounts," which they need to participate in the global payment system.
This Monday's announcement moves the Fed one step closer to possibly allowing Wyoming special purpose depository institutions (SPDI), like Kraken Bank, access to these accounts so they would not need banks as intermediaries.
"The new guidelines provide a consistent and transparent process to evaluate requests for Federal Reserve accounts and access to payment services in order to support a safe, inclusive, and innovative payment system," said Fed Vice Chair Lael Brainard in a statement.
Under the Fed's guidance, Tier 1 banks would be federally insured, but while Tier 2 banks won't be federally insured, they will still be subject to the federal banking agency's supervision. On the other hand, the last Tier 3 banks are neither federally insured nor will they be put through prudential supervision, which likely would apply to the Wyoming crypto banks.
With crypto companies suffering the brunt of the crypto winter, which has led to the downfall of some of the leading companies in the digital assets space, the U.S. authorities have now begun to set the ground rules to contain the fallout and ensure consumer security. The Fed's new guideline is one of the many initiatives to bring stability to the market.
The regulatory actions are not limited to the United States alone, as other governments and international bodies, too, have started many such initiatives to bring crypto assets under the regulatory net. For instance, the Financial Action Task Force (FATF) has rolled out the Travel Rule to ensure that cryptocurrencies aren't used in illicit activities, such as money laundering and terrorism financing.
Under the Travel Rule, Virtual Asset Service Providers (VASPs) are obligated to collect and share personally identifiable information (PII) of both the beneficiary and the originator of crypto transactions. Although only a few countries have adopted the Travel Rule, sooner or later, almost all countries will start enforcing the Travel Rule over VASPs.
Thus, it is ideal that VASPs prepare to comply with the Travel Rule. And to begin complying, VASPs need a Travel Rule Solution, such as the Veriscope, the best solution available in the market today. Check it out here: https://www.veriscope.network/ and contact our BizDev team for a discussion here: https://www.veriscope.network/contact.