The US Federal Reserve is establishing a new supervisory unit to oversee ‘complex’ technology partnerships between banks and non-banks, as well as activities related to cryptocurrencies and the implementation of blockchain technologies.
The aim of the ‘novel activities supervision program’ is to harness the benefits of financial innovation while mitigating risks to maintain the safety and soundness of the banking system. This program will thoroughly examine embedded and open banking partnerships where non-banks provide banking products through APIs, enabling automated access to the bank’s infrastructure.
Additionally, the program will scrutinize activities such as crypto-asset custody, crypto-collateralized lending, facilitating crypto-asset trading, and the issuance or distribution of stablecoins and dollar tokens. Banks that offer traditional services—such as deposits, payments, and lending—to crypto-asset-related entities and fintechs should anticipate increased regulatory scrutiny.
The oversight will further extend to the exploration and use of distributed ledger technology for various applications, including the issuance of dollar tokens and the tokenization of securities or other assets. Moreover, the Board has outlined the process that a state bank must follow before engaging in specific dollar token or stablecoin activities, emphasizing the need to demonstrate appropriate safeguards for conducting such activities in a safe and sound manner.