The Federal Reserve Board has taken a significant step towards regulatory oversight of rapidly advancing technologies within the banking sector with the creation of the Novel Activities Supervision Program. This program aims to oversee complex partnerships with non-banks, crypto-asset-related activities, distributed ledger technology, and concentrated provision of banking services to crypto-asset-related entities and fintechs. By fostering the benefits of technology-driven financial advancements while addressing risks, the program aims to maintain the safety and soundness of the U.S. banking system.
The Novel Activities Supervision Program, detailed in SR 23-7, specifically focuses on complex partnerships with non-banks to provide banking services. This acknowledges the increasing role of non-banks and emerging technologies in the financial landscape. By working within existing supervisory processes and enhancing oversight without imposing excessive burden, the program aims to ensure that financial innovation and regulatory oversight are aligned.
In addition to the program itself, the Federal Reserve Board has also provided guidance for state banks supervised by the Federal Reserve to engage in specific dollar token or stablecoin activities. State member banks looking to issue, hold, or transact in dollar tokens must demonstrate sufficient controls to conduct the activity safely. The guidelines address various risk factors such as operational and cybersecurity risks, liquidity concerns, compliance with anti-money laundering rules, and adherence to consumer protection statutes. This guidance is part of the Federal Reserve’s ongoing efforts to create clarity and promote a level playing field for banks with federal supervision.
The Federal Reserve’s announcement emphasizes its commitment to facilitating innovation while maintaining a robust regulatory framework. The Novel Activities Supervision Program reflects the need to monitor activities that may not be adequately addressed by existing supervisory approaches and raise concerns for the broader financial system. By engaging with external experts from academia, banking, finance, and technology, the program aims to ensure that it remains current and practical, incorporating insights from real-time data, market monitoring, and regular information exchange.
The creation of the Novel Activities Supervision Program by the Federal Reserve Board signals a proactive approach towards overseeing complex and rapidly advancing technologies within the banking sector. By fostering the benefits of financial innovation while addressing risks, the Federal Reserve aims to maintain the safety and soundness of the U.S. banking system. Through the program’s focus on complex partnerships, guidance for state banks, and engagement with external experts, the Federal Reserve seeks to promote innovation and regulatory clarity in an evolving financial landscape.