The Fed said that the newly introduced activities monitoring plan aims to encourage the good aspects of financial innovations along with addressing risks.
On Tuesday, August 8, 2023, the US Federal Reserve unveiled new guardrails to enhance the supervision of all the banks involved with crypto and stablecoin activities.
Under the “Novel Activities Supervision Program”, the US central bank will enhance the supervision of other banking organizations that it oversees. These activities include complex, technology-driven partnerships with non-banks to provide banking services to customers. Besides, it also involves crypto assets and the “distributed ledger” technology.
The new activities monitoring plan aims to encourage the good aspects of financial innovations while also identifying and dealing with risks to make sure the banking system stays safe and stable. This plan will become part of how the Federal Reserve already checks on banks. The experts from the plan will join the current supervision teams to keep an eye on banks involved in new activities. The Federal Reserve noted:
“Innovation has the potential to bring about swift transformations within individual banks or the financial system, giving rise to new forms of risks that could significantly affect the stability and reliability of banking institutions. Due to the newness of these activities, they could give rise to distinct questions regarding their authorization, might not be adequately covered by current supervisory methods, and could raise apprehensions for the wider financial system.”
Key Benefits of the Program Introduced by Federal Reserve
The Federal Reserve noted that the entities participating in “novel” activities won’t need to move into a separate supervisory portfolio. “Instead, the Program will work within existing supervisory portfolios and alongside existing supervisory teams,” it said, adding that it would notify in writing the banks whose activities will be subject to evaluation.
It was revealed that “the Program will help ensure that regulation and supervision allow for innovations that improve access to and the delivery of financial services, while also safeguarding bank customers, banking organizations, and financial stability.”
The Federal Reserve also provided additional details for state banks under supervision who want to be involved in stablecoin activities. The central bank mentioned that these banks need to have plans in place to manage risks related to cybersecurity, liquidity, consumer protection, and illegal financial activities.
The Federal Reserve’s announcement also follows the House Financial Services Committee’s recent progress in creating a thorough regulatory structure for stablecoins. However, discussions among lawmakers faced difficulties after the initial bipartisan agreement.