Fed oversight for crypto
Late yesterday, the Federal Reserve announced a more detailed regime for banks offering, or considering offering, crypto products – or as the Fed terms it – the “novel activities supervision program.” Read the press release.
Among the regime’s elements subject to supervision:
- “Complex, technology-driven partnerships with non-banks to provide banking services…”
- “Crypto-asset related activities…”
- Projects that use [distribute ledger technology] with the potential for significant impact on the financial system…”
- “Concentrated provision of banking services to crypto-asset-related entities and fintechs…”
Adding to the warning to banks, “The Program will be risk-based, and the level and intensity of supervision will vary based on the level of engagement in novel activities by each supervised banking organization.” The more a bank adds digital asset products, the more it receives supervision by the Federal Reserve.
The announcement is reminiscent of the January 3 warning titled, “Joint Statement on Crypto-Asset Risks to Banking Organizations” by the Fed, Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). See that one (PDF).
The Fed claims in yesterday’s announcement that it’s supporting innovation, but remains – at best – cautious stating, “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.”
As Reuters notes, stablecoins are an important element of the directive, perhaps inspired by Monday’s PayPal stablecoin announcement. “For banks to receive a written non-objection to be able to engage with stabelcoins, banks should demonstrate appropriate risk management, including having systems in place to identify and monitor any potential risks, including cybersecurity and illicit finance threats,” reports Reuters. Read more.
Letter SR 23-7: Creation of Novel Activities Supervision Program – FederalReserve.gov
Letter SR 23-8 / CA 23-5: Supervisory Nonobjection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens (stablecoins) – FederalReserve.gov
SAB 121 shade
Crypto policy executive Zach Wong dissects the challenges of crypto today and, specifically, how the Securities and Exchange Commission’s (SEC) “Staff Accounting Bulletin 121” (SAB 121) is negatively impacting publicly-traded, traditional finance companies’ efforts to offer crypto custody services to its customers.
In a post on his personal blog, Wong offers up what he thinks is wrong with the SAB bulletin written by the SEC’s Chief Accountant Paul Munter – and trumpeted by SEC Chair Gensler in the past. He also provides a plan for policymakers going forward which ultimately seeks a better way for businesses and consumers to custody their crypto.
A snippet: “SAB 121 is bad for three reasons. First, because publicly reporting banks can’t provide cryptoasset custody at any meaningful scale, crypto users turn to unsafe options like Celsius and FTX, cryptographically weak wallets like Atomic Wallet, or poorly administered self-custody setups. This is an at-least-indirect result of a U.S. regulatory decision.”
Opinion: Congress, Not the SEC, Should Set U.S. Digital Asset Policy – Matt Walsh, Castle Island Ventures in CoinDesk
SAB 121 shade – McHenry
It was only last May that House Financial Services Chair Patrick McHenry (R, NC) urged leaders on the House Appropriations committee Chairwoman Kay Granger (R, TX) and Ranking Member Rosa DeLauro (D, CT) to “not” fund SAB 121 in the 2024 SEC budget. McHenry wrote, “The Committee should prohibit funding for Staff Accounting Bulletin 121. SAB 121, issued late last year, precludes banking organizations from serving clients seeking digital asset safeguarding services. This has the effect of deterring market participants from entering or staying in the digital asset ecosystem. Moreover, such policy decisions made by staff circumvent the notice and comment requirements set forth in the Administrative Procedure Act and should not be funded.” Read the May letter (PDF – see page 4).
digital asset events
DeFi Retreat on August 29-30 in Brooklyn, New York, continues to grow its regulation-focused agenda with Commodity Futures Trading Commission (CFTC) Commissioner Kristin Johnson and Deputy Director Kevin Mosley of the Department of Justice’s National Cryptocurrency Enforcement Team among the participants.
United States of crypto
In light of the current SEC lawsuit against the company, crypto platform Coinbase continues to press forward with its defense on the communications front. Yesterday, in a company blog post adding to a compendium of state-by-state highlights illustrating crypto innovation, Coinbase looks at New York State. “The swift adoption of crypto and web3 technologies within the state, with nearly one-fifth of New Yorkers owning cryptocurrency, signals a promising future for crypto in New York,” says the company which includes other state stats showing New York’s digital assets growth (and importance). See it.
where’s the tax rule
One of the common refrains of anti-crypto advocates – like Rep. Brad Sherman (D, CA) at US Treasury Secretary Janet Yellen’s appearance in front of House Financial Services in June – is that crypto is filled with tax cheaters. Likewise, it isn’t often you see an industry ask for a tax framework, but that’s what CoinDesk’s Jesse Hamilton discovers as he explores why there has been no crypto tax rule to date.
Digital Chamber’s Cody Carbone tells Hamiton that “‘pushback from the White House’ may have held it back. He said there may have been fears of legitimizing the crypto industry with this rule while also debating oversight legislation for the digital assets markets and stablecoins.” Read more. And, see the rule everyone is waiting for on RegInfo.gov.
see more tips
DOJ will still argue campaign finance charges against Sam Bankman-Fried – The Block
Circle launches Programmable Wallets public beta in Web3 push – Blockworks
Binance Secures Crypto Exchange License in El Salvador – Decrypt
Coinbase begins $150M debt buyback at 36% discount – Cointelegraph
Sex Workers Took Refuge in Crypto. Now It’s Failing Them – Wired