The Federal Reserve today announced that the banks it supervises must first receive a written notification of supervisory nonobjection from the agency before engaging with tokens using distributed ledger technology or similar technologies to facilitate payments. The Fed also announced the establishment of a Novel Activities Supervision Program to enhance the supervision of novel activities related to cryptoassets, distributed ledger technology and “complex, technology-driven” partnerships with nonbanks to deliver financial services.
The Fed in January released guidelines for how it would evaluate requests from banks it supervises seeking to engage in novel activities, such as those involving cryptoassets. In its announcement today, the agency said that to obtain a written notification of supervisory nonobjection, a state member bank must demonstrate that it has established appropriate risk management practices for the proposed activities, including having adequate systems in place to identify, measure, monitor and control the risks of its activities, and the ability to do so on an ongoing basis.
The Fed said the new supervisory program will be risk-based, with the level and intensity of supervision varying depending on the level of engagement in novel activities by each supervised banking organization. It will notify in writing those institutions whose novel activities will be subject to examination through the program. The Fed added that it will periodically evaluate and update which banks should be subject to examination and will routinely monitor supervised banking organizations that are exploring novel activities.
