The U.S. Federal Reserve is expanding its oversight over digital asset activities for commercial banks as it seeks to promote innovation while protecting the sector’s integrity.
In its announcement, the Fed revealed the new program is geared toward supervising novel activities in the banks it oversees. These will include activities involving digital assets and distributed ledger technology.
“The goal of the novel activities supervision program is to foster the benefits of financial innovation while recognizing and appropriately addressing risks to ensure the safety and soundness of the banking system,” stated the Fed.
The latest guidance comes at a time when U.S. regulators have ramped up their digital asset crackdown. Led by Gary Gensler’s Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), these regulators have filed dozens of actions against virtual asset service providers (VASPs) from global giants like Ripple and Coinbase (NASDAQ: COIN) to firms like Beaxy exchange.
Being a nascent industry, existing regulations don’t comprehensively cover the digital asset sector, a loophole the Fed wants to close.
“Given the novelty of these activities, they may create unique questions around their permissibility, may not be sufficiently addressed by existing supervisory approaches, and may raise concerns for the broader financial system,” it stated.
In a separate supervisory letter, the Fed further stated that banks must obtain a written supervisory non-objection before issuing, holding, or transacting in U.S. dollar-backed stablecoins. The banks must first notify the regulator of the activity and provide a detailed plan on how it will address operational, compliance, liquidity, and money laundering risks.
The new guidance comes just days after PayPal (NASDAQ: PYPL) announced its new stablecoin, the PYUSD. Produced in partnership with Paxos Trust, the new stablecoin will be available in the coming weeks, including on the PayPal-owned mobile payments service Venmo.
As the Fed strives to guide commercial banks, Congress is also stepping up its stablecoin regulation efforts. Two weeks ago, the House Financial Services Committee debated the Stablecoin Bill, which seeks to offer issuers clarity and empower regulators to oversee the sector.
A key stipulation of the bill, in its current state at least, is that it takes away most of the Fed’s jurisdiction over the sector and confers this power to state regulators. Its proponents say this will spur innovation and progress and empower the states.
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Source: https://coingeek.com/federal-reserve-to-oversee-digital-asset-activities-for-us-banks/