On November 23, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency (“banking agencies”) released a joint statement recognizing that the emerging crypto-asset sector presents potential opportunities and risks for banking organizations, their customers, and the overall financial system.

The joint statement summarizes research regarding various issues related to digital assets after the banking agencies’ recent interagency crypto “policy sprints.”  Part of the focus of these agencies was to develop standardized vernacular to be utilized by the banking industry in regards to digital assets. In response to a comment period initiated by the FDIC, researchers studied the consumer protection risks, compliance hurdles, and legal issues digital assets present in the banking industry. The researchers also studied the applicability of existing regulation and guidance, while simultaneously identifying areas that could benefit from regulatory clarity.

The banking industry has been slowly steering into digital assets (we discussed this trend in earlier Consumer Finance & FinTech Blog posts here, here, and here) and the joint statement indicates that the researchers analyzed several crypto-asset activities that would be most relevant to banking organizations including, crypto-asset custody, sales of crypto-assets, loans collateralized by crypto-assets, crypto payment activity, and activities that may result in the holding of crypto-assets on a banking organization’s balance sheet.

Putting It Into Practice:  This statement carries the reminder that institutions seeking to engage in crypto-asset related activities must 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.

Additionally, this joint statement indicates that the agencies plan to provide clarity as to the legal and regulatory questions digital/crypto assets present.  Rules for the following are expected to be clarified in 2022:

  • Crypto-asset safekeeping and storage
  • Ancillary custody services
  • Facilitation of customer purchases and sales of crypto-assets
  • Loans collateralized by crypto-assets
  • The generation and distribution of stablecoins
  • Activities involving the holding of crypto-assets on balance sheet
  • Crypto-asset liquidity standards for activities involving U.S. banking organizations

Government agencies are still in the beginning phases of digital asset regulation and companies interested or involved in these fields should keep abreast of these important updates. We plan to provide those updates as they become available.

*Gabriel Khoury is a law clerk in Sheppard Mullin’s Washington, D.C. office.