Fed: American banks can confidently provide services for Crypto Assets without worrying about penalties.

Source: cryptoslate

Compiled by: Blockchain Knight

Michelle Bowman, the Vice Chair for Supervision of the Federal Reserve, acknowledged that cryptocurrency companies have faced disruptions in banking services due to regulatory uncertainties.

On August 19, at the blockchain seminar in Wyoming, Bowman also announced that the Federal Reserve's attitude towards blockchain innovation will undergo a fundamental shift.

She revealed that the Federal Reserve removed the "reputational risk considerations" in bank regulation at the end of June to eliminate barriers for financial institutions to provide services to legally operating digital asset companies.

This Federal Reserve official stated: "The cryptocurrency industry you are in has long faced numerous obstacles due to banking regulators adopting vague standards, issuing contradictory guidelines, and making inconsistent regulatory interpretations."

Bowman emphasized that banks should not face penalties for serving legally operating clients and pointed out that client choice decisions "are entirely within the purview of the bank's management," rather than being interfered with by regulatory agencies.

In addition, she mentioned that the Federal Reserve has shifted from an "overly cautious mindset" to begin supporting the traditional banking system in embracing blockchain technology.

She warned that regulators must choose between "establishing a technical framework" and "allowing innovation to completely bypass banks," the latter of which could undermine the economic relevance of the banking industry.

Currently, the Federal Reserve is updating its review manuals and regulatory materials to ensure the long-term implementation of the "removal of reputational risk" policy.

Bowman proposed four core principles to guide the Federal Reserve's new direction in the regulation of digital assets.

"Regulatory certainty" is the primary principle, aimed at addressing concerns about the industry's "lack of clear regulatory standards that deters investment in blockchain development."

Bowman questions: If companies are aware that collaborating with banks will face regulatory uncertainty, will they still choose to cooperate instead of turning to alternative solutions outside the banking system?

The principle of "targeted regulation" constitutes the second principle, requiring regulatory agencies to assess application scenarios based on specific circumstances rather than regulating based on a "worst-case" preset.

The Federal Reserve must acknowledge the unique differences between digital assets and traditional financial instruments, while avoiding a one-size-fits-all approach that fails to address actual risk conditions.

"Consumer protection" is the third principle, ensuring that customer-facing products comply with existing consumer protection regulations, including the prohibition of unfair, deceptive, or abusive practices.

The regulatory framework for digital assets must incorporate the Bank Secrecy Act and anti-money laundering requirements, while maintaining the safety and soundness standards of banks.

The "American Competitiveness" forms the last link of the framework, and this principle aims to position the United States as the world's primary destination for innovation. Bowman warns that if a reasonable regulatory framework cannot be established, the long-term leading position of the United States in the fintech development field may be at risk.

Bowman announced that the Federal Reserve's "innovative regulation" work will be reintegrated into the Reserve Bank review team, restoring the regular regulatory process for bank innovation activities.

She proposed allowing Federal Reserve staff to hold a small amount of digital assets to gain a deeper understanding of how blockchain operates, comparing this necessity to practical learning rather than theoretical learning.

Editor's note: This marks a stark shift from the previous stance of the U.S. government, particularly that of former SEC Chairman Gary Gensler. Gensler taught university-level blockchain courses at the Massachusetts Institute of Technology, but admitted that he has never held any digital assets and has never personally executed a transaction, meaning he has never actually engaged with blockchain using his own funds.

The Federal Reserve recognizes that tokenization helps expedite the transfer of asset ownership while reducing transaction costs and settlement risks. Bowman pointed out that banks of various sizes, including community institutions, can benefit from the efficiency improvements brought about by asset tokenization technology.

In addition, she emphasized that the passage of the "GENIUS Act" and the president's signature have positioned stablecoins as an important component of the financial system, which has far-reaching implications for traditional payment channels.

Bowman calls on industry participants to help regulators understand the ability of blockchain to solve more problems beyond existing application scenarios.

She specifically requested the industry to provide advice on how to use new technologies to combat fraud, viewing it as an important opportunity for the Federal Reserve to collaborate with the digital asset sector.

Bowman concluded: In the process of building a more modern and efficient financial system, innovation and regulation are complementary, rather than opposing.