The regulation of cryptocurrencies and digital assets must keep pace with innovation to ensure financial stability and consumer protection, Treasury Secretary Janet Yellen said in remarks at an industry event today.
“Our regulatory frameworks should be designed to support responsible innovation while managing risks—especially those that could disrupt the financial system and economy,” Yellen said. “As banks and other traditional financial firms become more involved in digital asset markets, regulatory frameworks will need to appropriately reflect the risks of these new activities. And, new types of intermediaries, such as digital asset exchanges and other digital native intermediaries, should be subject to appropriate forms of oversight.”
Among other things, Yellen emphasized the need for a regulatory framework that is “tech neutral”—meaning that it would be based on risks and assets rather than specific technologies. “Consumers, investors, and businesses should be protected from fraud and misleading statements regardless of whether assets are stored on a balance sheet or distributed ledger,” Yellen said. “Similarly, firms that hold customer assets should be required to ensure those assets are not lost, stolen, or used without the customer’s permission.”
Shortly after Yellen’s remarks, the FDIC sent a letter to FDIC-insured banks requesting that any institution considering engaging in crypto-related activities provide notification to the appropriate FDIC regional director, as well as “all necessary information that would allow the FDIC to engage with the institution regarding related risks”—specifically those related to safety and soundness, financial stability and consumer protection. Banks that are already engaged in crypto-related activities should notify the FDIC “promptly,” the letter said.
The FDIC’s definition of “crypto-related activities” includes acting as crypto-asset custodians; maintaining stablecoin reserves; issuing crypto and other digital assets; acting as market makers or exchange or redemption agents; participating in blockchain- and distributed ledger-based settlement or payment systems, including performing node functions; as well as related activities such as finder activities and lending.
“The FDIC will request that the institution provide information necessary to allow the agency to assess the safety and soundness, consumer protection, and financial stability implications of such activities,” the agency said. “The information requested by the FDIC will vary on a case-specific basis depending on the type of crypto-related activity. However, the initial notification to the FDIC Regional Director should describe the activity in detail and provide the institution’s proposed timeline for engaging in the activity.”
As policymakers continue to debate the best regulatory approach for cryptocurrencies, ABA President and CEO Rob Nichols spoke out in strong support of a level regulatory playing field between banks and nonbank cryptocurrency firms—and warned that the new FDIC guidance could have the opposite effect.
“We strongly support the approach outlined by Secretary Yellen today to bring cryptocurrency firms and products into a regulated framework and agree it is an urgent matter for policymakers,” Nichols said. “The secretary’s leadership sets the tone for a coordinated interagency approach that is critical to this effort’s success. Unfortunately, within hours of the secretary’s speech, the FDIC issued guidance that could make it more difficult for highly regulated and supervised banks to engage in crypto markets on behalf of their customers. “
Nichols noted that the FDIC’s new “prior notification requirement”—which follows a similar move by the OCC—“runs counter to the administration’s intent to foster responsible innovation, and risks tilting the playing field even more in favor of unregulated crypto firms that are not subject to rigorous oversight and supervision that banks face.”