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A top regulator has stated that United States regulators’ approach to digital assets and
blockchain technology is counterproductive and risks allowing other economies to leapfrog the country in technology leadership.

Travis Hill, the vice chair of the U.S. Federal Deposit Insurance Corporation (FDIC), blasted his agency over its closed-off approach in a speech on Monday at George Mason University. He also berated the Securities and Exchange Commission’s (SEC) guidance, which places an extreme burden on financial institutions engaged in digital asset activities.

Hill acknowledged that regulators must be cautious about new technology. However, the FDIC and its sister agencies’ current approach has “significant downsides.”

This approach has “contributed to a general public perception that the FDIC is closed for business if institutions are interested in anything related to blockchain or distributed ledger technology.”

He called on regulators to distinguish between ‘crypto‘ and blockchain or other distributed ledger technologies (DLT). While banks dealing in ‘crypto’ may need enhanced supervision,
blockchain regulation must be friendlier to promote innovation.

“I do not think banks interested in [blockchain], insofar as it simply represents a new way of recording ownership and transferring value, should need to go through the same gauntlet as banks interested in crypto,” he said.

Still on ‘crypto,’ the regulator criticized the SEC’s guidance from 2022, in which the agency demanded that banks recognize custodied digital assets as both assets and liabilities.

This differs from any other asset, which is held off the balance sheet and treated as customer property only. Holding assets on the balance sheet triggers a bevy of federal laws “which makes it prohibitively challenging for banks to engage in this activity at any scale.”

The SEC guidance, known as Staff Accounting Bulletin 121, has been criticized by several quarters, including legislators who intervened last year to call for friendlier regulations.

In his speech, Hill also hailed tokenization, which he believes can transform the U.S. financial sector. Benefits include “dramatic increases in settlement times for multi-currency bond issuance” and programmability, which could reduce the need to place funds in escrow when conducting high-value transactions.

Blockchain-powered atomic settlement can also introduce significant efficiencies in key markets, including the $7.5 trillion-a-day forex market.

On challenges, Hill says that the market must decide whether the world will rely on a single network or whether each institution will maintain its own ledger; if the latter, to what extent will these ledgers be interoperable?

Watch: Crypto regulation will make life easier for BSV

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