The Federal Reserve Board Issues New Policy: A Level Playing Field for All Banks

On Friday, January 27, 2023, the Federal Reserve Board announced a new policy statement aimed at ensuring all banks with a federal supervisor receive equal treatment, regardless of their deposit insurance status. The policy statement applies to all activities of state member banks, but has specific restrictions for crypto-asset activities.

Key Highlights of the Policy:

Uninsured and insured banks under the Board’s supervision will face the same restrictions on activities, including cutting-edge banking activities like those related to crypto-assets.

The FRB has a presumption against allowing state banks to hold crypto-assets as principal, but has not yet received enough evidence to justify reversing this stance.

If a state bank wants to issue a stablecoin, it must follow the same conditions for national banks, prove to FRB supervisors that it has risk management controls in place, and receive a non-objection from the Federal Reserve before commencing the activity.

The FRB considers issuing tokens on open, public, and decentralized networks to be inconsistent with safe and sound banking practices.

State banks are allowed to serve as custodians for crypto-assets if they comply with consumer protection, anti-money laundering, and anti-terrorist financing laws and operate in a safe and sound manner. Banks offering custody services for crypto-assets will face strict expectations for risk management and must demonstrate an effective control environment related to the activity.

Banks will also be subject to limitations on certain activities imposed on national banks, overseen by the Office of the Comptroller of the Currency. This will apparently prevent regulatory loopholes and foster a level playing field.

Banks must abide by the law and operate in a safe and sound manner, putting in place measures like risk management processes, internal controls, and information systems that are appropriate for their activities’ nature, scope, and risks.

The policy will come into effect once it is published in the Federal Register.