Fed Withdraws Crypto Banking Restrictions, Ends Non-Objection Process

Fed Relaxes Crypto Oversight, Eliminating Pre-Approval Requirements for Banks

  • Federal Reserve withdraws four crypto-asset related advisories, removing requirements for banks to seek pre-approval for digital asset activities.
  • The move aligns with similar actions by the OCC and FDIC, following pressure from Republican House Financial Services Committee members.
  • Future crypto oversight will occur through normal supervisory channels, with regulators considering additional guidance to support innovation.

The Federal Reserve has withdrawn four regulatory advisories related to cryptocurrency activities, eliminating requirements that previously forced banks to notify the Fed in advance or obtain non-objection letters before engaging with digital assets. This action follows similar moves by the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC), completing a regulatory shift across all three major banking authorities.

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The regulatory rollback comes after Republican members of the U.S. House Financial Services Committee sent a letter earlier this month demanding these changes. The lawmakers characterized the supervisory non-objection process as deliberately obstructing financial institutions from engaging with distributed ledger technology (DLT). Evidence from FDIC freedom of information requests and the notable absence of bank-launched crypto services appear to support this claim.

Going forward, crypto-related banking activities will be monitored through standard Fed supervisory procedures. The Fed stated it “will work with the agencies (FDIC, OCC) to consider whether additional guidance to support innovation, including crypto-asset activities, is appropriate.”

Industry Response

American Bankers Association President and CEO Rob Nichols welcomed the change, stating: “Today’s announcement from the Fed and FDIC is a welcome and important step toward achieving that goal and ensuring consumers can access these products and services through their trusted bank relationships.” He added that the organization looks forward to continuing work with regulators in this evolving marketplace.

Understanding the Withdrawn Guidance

The rescinded advisories include a 2022 letter requiring Fed-supervised banks to notify regulators before engaging in digital asset activities and a 2023 letter (SR 23-8) that established a supervisory non-objection process for state member banks working with distributed ledger technology tokens.

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Also withdrawn were two joint cautionary letters issued in 2023 by all three banking regulators. These warnings emerged following the crypto market crash triggered by Terra’s collapse, which led to massive fund withdrawals at Silvergate Bank. Shortly afterward came the unrelated Silicon Valley Bank failure and the disputed crypto-linked collapse of Signature Bank.

The policy shift mirrors changing approaches at other regulatory bodies under the new administration. While the SEC took a hard stance on crypto during the Biden administration, critics now worry about potential underregulation, particularly regarding meme coin pump-and-dump schemes that remain largely unaddressed despite concerns from figures like popular podcaster Joe Rogan.

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