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The board of governors of the United States Federal Reserve Bank has issued supervisory guidance for all banking institutions under its wing that wish to offer or are already providing digital assets-related products and services.

Under the guidance letter signed by the director of Fed’s Division of Supervision and Regulation, Michael Gibson, and the Director Division of Consumer and Community Affairs, Eric Belsky, all Fed-regulated financial institutions of any size engaged in or considering digital asset-related activities will be mandated to notify the regulator of their intention.

“This letter provides that a Federal Reserve-supervised banking organization engaging or seeking to engage in crypto-asset-related activities should notify its lead supervisory point of contact at the Federal Reserve,” the letter said.

It added that banks should analyze the legal permissibility and determine whether any filings are required for the activity they intend to engage in. There is also a need to implement adequate systems to manage risk and ensure their initiatives are safe and compliant with the law.

The Fed explains that these systems and the notification will help monitor risks associated with digital assets more closely. Highlighting a few of the risks, the central banking system notes that digital assets are still a nascent technology, which may expose the financial system to money laundering, cause stability concerns, and pose heightened risks to consumers.

“Given the heightened and novel risks posed by crypto-assets, the Federal Reserve is closely monitoring related developments and banking organizations’ participation in crypto-asset-related activities,” the letter added.

Fed focused on regulatory clarity for digital assets in 2022

The letter comes after the Federal Reserve Bank promised to clarify traditional banks’ roles in the digital asset market in late 2021. According to a Reuters report, the agency, in collaboration with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), vowed to identify and update banking regulations to reflect digital assets-related concerns this 2022.

These concerns were exacerbated by the collapse of the digital assets market due to the crash of Terra’s TerraUSD (UST). In May, the central bank warned that stablecoins pose serious market risks.

Meanwhile, the Fed is working on a central bank digital currency for the U.S. Earlier this year, it published a report on the progress of the initiative while highlighting that it was not in a hurry to issue the digital currency but saw great potential in its ability to solidify the dollar’s position as a global reserve currency.

Watch: The BSV Global Blockchain Convention presentation, LiteClient: Scaling Blockchain with Simplified Payment Verification

https://www.youtube.com/watch?v=-j9Kvvm2xxc

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