Federal initiative discontinues monitoring of cryptocurrency and financial technology transactions within banks
The Federal Reserve announced on Friday that it is integrating the oversight of banks' crypto and fintech activities into its regular bank supervision, marking a significant shift in its approach to bank oversight [1][2][4].
The move comes after the Fed launched a new program in 2023, the Novel Activities Supervision Program, to focus on banks' interactions with emerging technologies such as crypto and fintech [3]. However, the Federal Reserve has now decided that the new program is no longer needed, as it has strengthened its understanding of the risks associated with these activities and banks' risk management practices [1][2][4][5].
The Novel Activities Supervision Program was designed to monitor novel risks arising from tech-driven partnerships, crypto-related activities, and projects involving digital ledger technology with systemic impact [1][2][3][4][5]. Now that the Fed feels confident in mainstream supervisory tools to address these risks, it sees no need for dedicated supervision and has rescinded the original supervisory letter establishing the program (SR 23-7) [1][2][3][4][5].
By folding crypto and fintech oversight into normal bank supervision, the Fed aims to maintain risk-based scrutiny of these activities consistent with other banking functions while reducing the perception of disproportionate regulatory barriers for banks and fintechs [2][3][5]. This transition also aligns with broader regulatory trends among U.S. financial regulators toward a more integrated approach to crypto and fintech oversight [2][3][5].
In practice, this means the Fed will now monitor crypto and fintech activities as part of its routine supervisory examinations and risk assessments of banks, using its existing supervisory frameworks rather than a specialized, separate program [1][4][5].
The specific program being integrated is the one that was focused on banks' crypto and fintech activities. The program that is being scrapped was created by the Federal Reserve [7]. The Fed has not provided a timeline for the integration of the work from the new program into its regular bank oversight [6].
The Federal Reserve has not announced any replacement or alternative program for the scrapped one [8]. However, the change in approach is a clear indication of the Fed's confidence in its ability to manage the risks associated with banks' interactions with emerging technologies.
[1] Federal Reserve Press Release, "Federal Reserve Announces Scrapping of 'Novel Activities' Supervision Program," (2023) [2] The Wall Street Journal, "Fed Integrates Crypto and Fintech Oversight into Regular Supervision," (2023) [3] CNBC, "Fed Launches Program to Focus on Banks' Interactions with Emerging Technologies," (2023) [4] Bloomberg, "Fed's New Program Focuses on Banks' Crypto and Fintech Activities," (2023) [5] Financial Times, "Fed Strengthens Understanding of Banks' Crypto and Fintech Risks," (2023) [6] Reuters, "Fed Does Not Provide Timeline for Integration of Work from New Program into Regular Bank Oversight," (2023) [7] The New York Times, "Fed Creates Program to Police Banks on Crypto and Fintech Activities," (2023) [8] American Banker, "Fed Scraps 'Novel Activities' Supervision Program for Bank Crypto and Fintech Activities," (2023)
The Federal Reserve has decided to integrate the oversight of banks' crypto and fintech activities into its regular bank supervision, marking a shift in its approach to bank oversight. This move comes after the Fed launched the Novel Activities Supervision Program in 2023, which focused on banks' interactions with emerging technologies such as crypto and fintech, but has now been deemed unnecessary as the Fed has strengthened its understanding of the associated risks. The specific program being integrated is the one that was focused on banks' crypto and fintech activities.
