Morgan Stanley Sees Crypto-Banking Regulation Arriving Faster Than Expected

The bank’s analysts say this is positive for crypto banks Silvergate and Signature.

Dec 1, 2021 at 11:38 a.m. UTC
Updated Dec 1, 2021 at 3:11 p.m. UTC

Regulators are looking to develop a set of rules for crypto banks sooner than expected, according to a research note from Morgan Stanley published last week.

This follows a joint statement from the Federal Reserve, Federal Deposit Insurance Corp. (FDIC) and Office of the Comptroller of the Currency (OCC) on Nov. 23 that outlined a “policy-sprint” to develop rules for firms offering services in the crypto space.

It was already known that regulators were working on this framework, the report says, but their “sense of urgency” on the matter is a positive for getting new rules in place “sooner rather than later.”

“Well-crafted regulation will help to promote the adoption of crypto assets and their related services,” the Morgan Stanley analysts wrote. That is positive for crypto banks such as Silvergate and Signature.

The biggest risk the bank sees is that policymakers move too fast and “implement measures that inadvertently inhibit adoption of cryptocurrencies,” and whilst not its base case, “regulators could still in theory adopt a highly restrictive stance on crypto-related services (or prohibit them altogether) that severely inhibit their growth.”

Services to fall under the scope of this new framework will include “custody; facilitation of customer purchase/sales of crypto assets; loans collateralized by crypto assets; issuance and distribution of stablecoins; and activities involving the holding of crypto assets on banks’ balance sheets,” the note says.

Regulators will also “assess potential capital and liquidity standards for banks to adhere to when providing crypto-related services,” the bank said.

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