Fed scraps oversight program for banks with crypto and fintech exposure

<?xml encoding="UTF-8">

The Federal Reserve said Friday that it was ending its Novel Activities Supervision Program, which was created to strengthen oversight of banks engaged in emerging, technology-driven activities, especially crypto assets, distributed ledger technology (DLT), and complex fintech partnerships.

The central bank is now moving oversight of those activities back into its standard supervisory process, saying it has built up sufficient understanding of these activities, their associated risks, and how banks manage them.

The program, launched in 2023, aimed to ensure that the risks from emerging, technology-driven activities were identified and managed appropriately, while still allowing beneficial technologies to develop.

The Fed said novel activities could create unique legal and supervisory questions, weren’t always covered by existing oversight and could pose broader financial stability concerns.

The program would have covered a range of activities, including stablecoin issuance, tokenized securities, API-driven partnerships with non-banks, and banking exposure to crypto clients. Under the plan, Fed examiners would have worked within existing supervisory teams to flag and monitor “novel” activities, tailoring scrutiny to a bank’s level of involvement.

The original program was designed to leverage external expertise from academia and industry to inform future supervisory guidance, aiming to balance innovation with safety and soundness considerations.