U.S. Banks Need Fed Approval to Interact With Stablecoins and Crypto Assets

• The U.S. Federal Reserve has released a regulation letter outlining its new rules on how state member banks can interact with stablecoins and crypto assets.
• Banks must demonstrate that they have the proper controls in place to manage associated risks before receiving permission from the Fed to engage in activities related to stablecoins.
• Even banks that are just testing out stablecoins need to get approval from the Fed before doing so.

U.S Federal Reserve Introduces Rules for Banks Interacting With Stablecoins and Crypto Assets

The U.S. Federal Reserve has released a regulation letter outlining its new rules on how state member banks can interact with stablecoins and crypto assets. This includes issuing, holding, or transacting in dollar tokens to facilitate payments.

Requirements for Permission From the Fed

In order for a state member bank to receive approval from the Fed, it must demonstrate that it has established appropriate risk management practices that address operational, cybersecurity, liquidity, illicit finance and consumer compliance risks.

Testing of Stablecoins Also Requires Approval

Even if a state member bank is only looking to test out stablecoins, it needs to obtain permission from the Federal Reserve first before doing so. More than one-third of commercial banks in the US are members of the Federal Reserve Bank of Richmond, making this an important development for those institutions looking to get involved with digital assets and cryptocurrency services in some capacity.

Risk Management Practices Required

Before granting permission for banks engaging with any form of cryptocurrency or digital asset activity, supervisors will need to verify these institutions have adequate risk management practices in place for dealing with operational issues, cyber threats, liquidity concerns and consumer protection regulations related to their use cases involving cryptocurrencies or digital assets like stablecoins or tokens denominated in national currencies issued using distributed ledger technology (DLT).

Conclusion

With more than one-third of commercial banks being members of the Federal Reserve Bank of Richmond, this set of rules will be crucial for financial institutions interested in getting involved directly with cryptocurrency services such as issuing their own coins or investing into them through trading platforms or other means. It remains unclear at this time what kind of impact these rules might have on current projects within the space but they certainly appear to be another step towards more widespread adoption by traditional players within the banking sector going forward