Fed tells banks to pay attention to legal aspects before jumping into crypto

The Federal Reserve Board wants to see banks take time to understand the cryptocurrency space first before diving in.

The US Federal Reserve Board has warned banks looking to engage in crypto-related activities or offer such services to ensure they are familiar with applicable regulatory requirements and guidelines.

The Fed’s caution to Board-supervised banking institutions was announced in a letter released on Tuesday, and comes after recent high-profile crypto-related engagements involving the world’s largest asset investment manager BlackRock.

“The emerging crypto-asset sector presents potential opportunities to banking organisations, their customers, and the overall financial system,” the Fed noted in the press release. However, the central banks’ take is that crypto can pose certain risks, including consumer protection and financial stability.

So, while the overall opportunity for investors is there, the regulator wants banks to ensure they understand the legal environment and related requirements before they get involved.

Fed outlines steps banks need to follow

In its supervisory letter, the Fed therefore calls on banks to take such steps as assessing whether the crypto activity of interest is “legally permissible.” 

They also need to determine whether there are any regulatory filings to be made, with banking organisations now required to notify the central bank before diving into crypto-related activities.

Another key consideration banking institutions need to look at is whether they are adequately prepared in terms of having required safety systems and controls.

Last month, the Federal Deposit Insurance Corporation (FDIC) warned crypto users that the agency’s deposit protections do not apply to cryptocurrencies or crypto firms. This came as the government agency asked companies not to mislead consumers.

In 2021, the Fed Board, FDIC, and the Office of the Comptroller of the Currency (OCC), jointly released a statement on crypto policy, while the push to bring clarity to the industry continues across the world.