This week, the Federal Reserve (“the Fed”) issued guidelines telling all banking organizations it supervises (“supervised banks”) what they must do before getting involved in crypto-related activities -change. While this is a step in the right direction, for those looking for clear guidance in this area, the Fed’s statements are somewhat vague and do not define exactly what supervised banks should do. The Fed guidance also fails to answer one of the biggest questions in this space – who will be the primary crypto regulator?

The guidelines state that supervised banks “must analyze the legality of such activities under relevant state and federal laws and determine whether deposits are required.” In other words, it looks like the Fed isn’t going to get into the regulatory turf war we’ve seen unfold between the SEC and the CFTC, or tell you which laws are relevant. The Fed guidelines essentially tell supervised banks to determine which laws are relevant and follow those laws.

This criticism might be a little harsh as the Fed notes that “the emerging crypto-asset sector presents potential opportunities for banking organizations, their customers, and the broader financial system,” and recommends that supervised banks go to their “primary point of contact” at the Fed for questions about the legality of crypto-related activities. In other words, the Fed’s door is open and they are ready to “talk crypto” with supervised banks .

Additionally, the Fed anticipates that there are certain risks that supervised banks and their compliance teams should focus on. The Fed identifies the following risks:

  1. Fight against money laundering and fight against the financing of terrorism;
    • The limited transparency of some crypto-assets can make it difficult to identify and track ownership;
  2. Consumer protection and legal compliance;
    • The potential for price volatility, misinformation, fraud and theft or loss of assets;
    • Legal exposure to a variety of different issues, including “the legal status of many crypto-assets;
  3. Financial stability
    • Stablecoins could potentially pose a risk to financial stability due to “destabilizing runs and disruptions in payment systems”;
  4. Legal authorization
    • Assess whether the activity to ensure it is not illegal and whether deposits are required under federal banking laws.

While the “letter does not address the legal admissibility of specific crypto-asset-related activity,” it does suggest that crypto-asset-related activities “may include, but are not limited to, safekeeping of crypto -assets and traditional custodial services; ancillary custodial services; facilitation of purchases and sales of crypto-assets by customers; loans secured by crypto-assets; and the issuance and distribution of stablecoins. encourage supervised banks to invest resources in these activities.

Finally, the Fed guidelines also instruct supervised banks to notify the Fed if they are already involved in crypto-asset-related activities or plan to do so in the future. While these guidelines do not provide absolute clarity for supervised banks, they do provide an opportunity for dialogue with their regulator and can be seen as a different tact than other federal agencies have adopted.