The Federal Reserve's new regulatory plan focuses on "Bank Collaboration with Crypto Institutions," crypto custody, and stablecoin issuance.

The Federal Reserve mentioned new fintech regulation policies in two announcements, focusing on collaboration between banks and "non-bank entities," as well as "cryptocurrency and fintech companies." The regulatory plan also covers custody, loans, and stablecoins related to crypto assets.

Federal Reserve Updates Supervision Plan

The Federal Reserve announced in a notice on August 8th the establishment of a new program called the "Novel Activities Supervision Program" to collaborate with existing regulatory teams in monitoring the risks posed by innovative activities within banking organizations.

The announcement highlights that this program will help the Federal Reserve build specialized technical knowledge and better understand the developments in financial innovation, with a focus on the following activities:

Banks Providing Services to "Non-Bank Entities"

Banks and non-bank entities establish complex relationships where non-bank entities can offer banking products and services to end-users, often driven by technologies like APIs that can access the bank's infrastructure automatically.

Banks Providing Services to "Crypto, Tech Companies"

Banking organizations that specifically offer traditional banking services such as deposits, payments, and loans to entities in the crypto and fintech sectors.

Crypto Asset-Related Activities

• Crypto asset custody

• Crypto-backed loans

• Facilitating crypto asset transactions

• Issuance of stablecoins, USD tokens

Blockchain-Related Activities

• Projects using distributed ledger technology with significant potential impact on the financial system

• Projects exploring the issuance of USD tokens and tokenizing assets using distributed ledger technology

While US authorities have not publicly attributed the banking crisis in the first half of the year to cryptocurrencies, the measures mentioned above seem to be directly aimed at banking institutions collaborating with crypto enterprises.

Recap: Federal Reserve Orders Silvergate to Liquidate in a Limited Time! A Retrospective of Crypto-Friendly Bank Silvergate's Life

Issuing Stablecoins Requires "Regulatory No Objection Letter"

In another announcement, the Federal Reserve pointed out that Federal and state-chartered banks seeking to participate in activities involving such USD tokens, including testing, must provide relevant information to the Federal Reserve to demonstrate appropriate risk management before receiving a written regulatory no objection notice.

The risks mentioned in the announcement include:

• Operational risks: Clarity of responsibilities and obligations of relevant parties, transaction verification processes such as settlement times and finality, and the irreversibility of transactions.

• Cybersecurity risks, including risks related to transaction networks, smart contracts, and the use of any open-source code.

• Liquidity risks: Run-off risks.

• Illicit financial risks: Compliance with the Bank Secrecy Act and requirements from the Office of Foreign Assets Control (OFAC) such as KYC.

• Consumer compliance risks: Ensuring compliance with regulations related to consumer protection.