Federal Reserve introduces new activity supervision plan to strictly scrutinize banks involved in encryption

Author: Jesse Hamilton, CoinDesk; Compiler: Songxue, Jinse Finance

** The Federal Reserve is launching a new program to oversee banks’ cryptocurrency activities and further specify that lenders under its jurisdiction must obtain approval before engaging in digital asset activities. **

The move announced on Tuesday will not change any rules for cryptocurrency banking, but only defines how the central bank intends to handle its regulatory matters, placing transactions with the cryptocurrency industry under the "New Activities Regulatory Scheme" under which Under the plan, the Fed's digital asset experts will work alongside the regulator's regular supervisory staff.

The Fed also issued a more comprehensive explanation of how banks it oversees need to obtain pre-approval to participate in stablecoin transactions. **An institution “issuing, holding or trading dollar tokens to facilitate payments” needs to demonstrate to regulators in advance that it can do so in a “safe and secure manner” and requires formal approval from the Federal Reserve. **

** Such a license may be difficult to obtain, as each bank will need to demonstrate that it can "identify, measure, monitor and control the risks of its activities," while the Fed will look for any loopholes in areas such as money laundering, customer runs and hacking. **

The central bank's statement, intended to reinforce guidelines it issued in January for cryptocurrencies, came on the heels of PayPal's announcement that it would launch its own stablecoin.

U.S. banking regulators have made clear during this administration that they intend to maintain a substantial barrier between the banking system and the crypto industry, though they also welcome continued experimentation by lenders under their close watch. The Fed said the new activity plan will inform each bank when its exposure to digital assets will be reviewed.

"The level and intensity of supervision will vary according to the extent to which each regulated banking organization is involved in new activities," the regulator said.

Meanwhile, the central bank said its new program "will help ensure that regulation and supervision allow innovation and improve access to and delivery of financial services."