US Regulators Starting to Align over Crypto Assets?

Following a statement released by three US banking regulators, the Commodity Futures Trading Commission’s Dawn Stump has released her own statement welcoming the “clarity” their statement brings to the debate amongst US regulators over who should be overseeing what aspect of the growing crypto assets business.

The Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency say in their statement they recognise the emerging crypto-asset sector presents potential opportunities and risks for banking organisations, their customers, and the overall financial system. The agencies added that as supervised institutions seek to engage in crypto-asset-related activities, it is important that they provide coordinated and timely clarity where appropriate to promote safety and soundness, consumer protection, and compliance with applicable laws and regulations, including anti-money laundering and illicit finance statutes and rules.

To that end, the three say they recently conducted a series of interagency “policy sprints” focused on crypto-assets. Similar to a “tech sprint” model, agency staff with various backgrounds and relevant subject matter expertise conducted preliminary analysis on various issues regarding crypto-assets.

The focus of the sprint work included:

• Developing a commonly understood vocabulary using consistent terms regarding the use of crypto-assets by banking organisations.
• Identifying and assessing key risks, including those related to safety and soundness, consumer protection, and compliance, and considering legal permissibility related to potential crypto-asset activities conducted by banking organisations.
• Analysing the applicability of existing regulations and guidance and identifying areas that may benefit from additional clarification.

To place the sprint work in context, the agencies say their staff reviewed and analysed a number of crypto-asset activities in which banking organizations may be interested in engaging including custody; the facilitation of customer trading of crypto-assets; loans collateralised by crypto-assets; activities involving payments, including stablecoins; and activities that may result in the holding of crypto-assets on a banking organisation’s balance sheet.

Based on this preliminary and foundational staff-level work, the agencies say they have identified a number of areas where additional public clarity is warranted. As a result, they have developed a crypto-asset roadmap.

Throughout 2022, the agencies say they plan to provide greater clarity on whether certain activities related to crypto-assets conducted by banking organisations are legally permissible, as well as expectations for safety and soundness, consumer protection, and compliance with existing laws and regulations.

They also will evaluate the application of bank capital and liquidity standards to crypto- assets for activities involving US banking organisations and will continue to engage with the Basel Committee on Banking Supervision on its consultative process in this area.

The statement has been welcomed by CFTC commissioner Stump, who earlier this year released a paper calling for greater regulatory clarity. In the latest statement, Stump says, “I am pleased that these federal banking regulators have joined me in an effort to provide greater clarity around the impact of existing laws and regulations on certain crypto-asset activity. Clearly outlining the application of various existing requirements is foundational to advancing proper oversight of these products and their various utilities.

“As digital assets play a larger role in our financial system and the economy on a whole, those who invest or engage in activities relating to such assets, as well as the general public, are entitled to clarity as to how this new financial asset class is regulated in the United States,” she continues. “Until we remedy the current confusion about the application of federal and state regulators’ existing legal authorities with respect to digital assets, we cannot have an honest conversation about whether any agency needs new authorities.

“Before considering any overhaul of our regulatory structure as it relates to digital assets (and to avoid regulating these assets through the exercise of enforcement authority), let’s get the facts straight about our current system,” she concludes.