US Fed Reminds Banks to Check for Legal Permissibility Before Offering Crypto-Related Services

The U.S. Federal Reserve published an open letter Tuesday directing Fed-supervised banks to make sure they check first that any crypto-related activities they want to undertake are legally allowed.

The letter, signed by Director of Supervision and Regulation Michael Gibson and Director of Consumer and Community Affairs Eric Belsky, opened by saying that the crypto sector "presents potential opportunities" to banks and their customers, but also "may pose risks."

The risks include the relative immaturity of the technology underpinning cryptocurrencies, cybercrime and money laundering concerns, consumer protection risks and possible risks to financial stability.

"Certain types of crypto assets, such as stablecoins, if adopted at large scale could also pose risks to financial stability including potentially through destabilizing runs and disruptions in the payment systems," the letter said.

As a result, the Fed told its supervised banks to check whether they have to draft any regulatory filings or are legally allowed to engage with crypto if they are interested in doing so.

The banks should also contact their supervisor at the Fed and set up risk management systems and controls.

"The emerging crypto asset sector presents potential opportunities to banking organizations, their customers, and the overall financial system; however, crypto asset-related activities may also pose risks related to safety and soundness, consumer protection, and financial stability," a press release said.

The letter comes a day after the Fed published new guidance detailing how it would approach giving master account access to new banks, including novel financial institutions with state charters like Wyoming's special purpose depository institutions. The move could open the door to allowing crypto-native banks provide services to the broader sector.