Fed Ends Special Crypto Oversight Program for Banks

Federal Reserve Streamlines Crypto Oversight

The Federal Reserve announced Friday the discontinuation of its Novel Activities Supervision Program, initially designed to enhance the supervision of banks involved in emerging, technology-driven activities, including crypto assets, distributed ledger technology (DLT), and complex fintech partnerships. This move signals a shift towards integrating the oversight of these activities into the Fed’s standard supervisory framework.

Key Takeaways

• The Federal Reserve has ended its dedicated supervision program for banks engaging with crypto and fintech.
• Crypto and fintech oversight will now be part of the Fed’s routine supervision process.

Integrating Crypto and Fintech into Standard Oversight

The central bank is transitioning oversight of crypto and fintech activities into its regular supervisory process, citing a now-sufficient understanding of these activities, their inherent risks, and the risk management strategies employed by banks. The Novel Activities Supervision Program, launched in 2023, was intended to ensure emerging risks from technology-driven activities were identified and managed effectively, while still fostering technological innovation.

The Fed noted that novel activities can present unique legal and supervisory challenges, potentially falling outside existing oversight frameworks and posing financial stability concerns. The program initially covered areas like stablecoin issuance, tokenized securities, API-driven partnerships with non-banks, and banking services to crypto clients. Under the program, Fed examiners collaborated within supervisory teams to identify and monitor "novel" activities, tailoring scrutiny based on a bank’s level of engagement.

The program also sought to leverage external expertise from academia and industry to inform supervisory guidance, balancing innovation with safety and soundness considerations.

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