US Federal Reserve Tightens Crypto Oversight and Approval Process

the building of US Federal Reserves with the US flag hoted at top of it

The U.S. Federal Reserve has initiated a fresh initiative aimed at supervising the cryptocurrency operations of banks. Additionally, the central bank has provided additional clarification regarding its stipulation that financial institutions within its jurisdiction must seek authorization prior to participating in any digital assets-related undertakings.

In an announcement made on Tuesday, it was revealed that there will be no alterations to the existing regulations governing crypto banking. Instead, the focus of this development is to outline the approach the central bank plans to adopt for its supervisory role. This will involve incorporating interactions with the cryptocurrency industry into the newly established "novel activities supervision program." 

Within this framework, the Federal Reserve's specialized digital asset experts will collaborate with the standard regulatory supervisors to ensure effective oversight.

Furthermore, the Federal Reserve has provided a more comprehensive elucidation of the procedure that banks under its oversight must follow when seeking pre-approvals to engage with stablecoins. 

Any financial institution involved in activities such as the issuance, possession, or transaction of dollar tokens to facilitate payments is required to demonstrate to the supervisory authorities that it can carry out these actions in a manner that is both secure and prudent. Subsequently, formal approval from the Federal Reserve is imperative before proceeding.

The declarations made by the central bank aim to strengthen the cryptocurrency guidelines it initially introduced in January. These recent statements, unveiled on Tuesday, closely follow the rapid announcement by PayPal regarding its plans to introduce its own stablecoin.

Throughout the current administration, U.S. banking regulators have consistently communicated their intention to uphold a significant demarcation between the traditional banking system and the cryptocurrency sector. 

However, they emphasize that financial institutions are encouraged to continue exploring innovations under stringent oversight. The recently introduced novel-activities program will ensure that each bank is informed prior to the commencement of a review concerning its digital assets involvement, according to the Federal Reserve's statement.

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