Federal Reserve Sets Up A New Supervisory Division For Novel Technology Partnerships
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The US Federal Reserve is creating a new supervisory division that caters to the complex technology partnership deals between banks and non-banking entities, the cryptocurrency industry and the fast-evolving blockchain technology.
Federal Reserve sets new supervisory unit for complex technology partnerships
According to the Federal Reserve, the “novel activities supervision program” aims to promote the benefits of financial innovation. The program will also address the risks present in the sector to promote the safety and sound nature of the banking industry.
The program will dive into the open banking partnerships where a non-banking entity operates as a provider of banking products through APIs that will provide automated access to the infrastructure of a particular bank.
Some of the activities this new unit will support include crypto asset custody, lending products collateralized by cryptocurrency products while supporting stablecoin or dollar token issuance or distribution. These activities will also be under the regulatory radar of this watchdog.
The banks that offer traditional banking services like deposits, payments, and lending to cryptocurrency service providers and fintechs can also anticipate that they will have more scrutiny from the regulator.
The Federal Reserve will also conduct active oversight of the exploration and the use of distributed ledger technology for various use cases. Some use cases the technology supports include issuing dollar tokens and tokenizing securities and other financial assets.
The Board has also offered extra data on the process that a state bank needs to follow before using a particular dollar token and stablecoin activities. Some of the activities the board can support include demonstrating it has suitable safeguards to conduct these activities safely and soundly.
US cracks down on crypto
The US is cracking down on cryptocurrency activities, with the recent focus on technology partnerships by the Federal Reserve being the latest scrutiny. The US Securities and Exchange Commission (SEC) has filed several lawsuits against some leading players in the cryptocurrency industry, such as Binance and Coinbase.
The SEC has also failed to approve a Bitcoin spot exchange-traded fund (ETF) despite several applications being made by leading financial institutions such as BlackRock and Fidelity. Recently, the SEC delayed its decision on a Bitcoin ETF application by Ark Invest, with a former SEC enforcement chief saying that the commission would never approve such a product.
Cryptocurrency exchanges have also faced challenges securing a USD banking partner amid ongoing regulatory scrutiny. In June, Binance US halted US dollar deposits amid concerns that the SEC wanted to freeze the company’s assets.
A report by the Wall Street Journal said that Binance US has also struggled to secure banking partners following the collapse of Signature Bank earlier this year. Signature Bank was one of the top banking providers in the cryptocurrency industry, allowing firms operating in the sector to process USD transfers.
