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New guidelines from the Federal Reserve for banks regarding working with cryptocurrencies


 Despite the drop in cryptocurrency prices that has brought its total market cap down from about $2.4 trillion at the beginning of this year to $1.1 trillion at press time, institutions are still interested in opportunities to participate in the crypto markets.


The US Federal Reserve (Fed) has provided additional information to supervised banking organizations that engage in or seek to engage in activities related to crypto assets. On the other hand, cryptocurrency markets presented good opportunities even though they carry various risks including but not limited to cyber security risks, money laundering, lack of consumer protection, legal compliance, and technological risks.


According to the Federal Reserve's press release, banking institutions must demonstrate their ability to manage the risks posed by crypto-related activities. The press release stated that: “The banking institution subject to supervision shall have appropriate systems, risk management and controls in place to conduct such activities safely and soundly and consistent with all applicable laws, including consumer protection laws and regulations before engaging in such activities.”


Banking institutions are also required to notify the Federal Reserve if they engage in or seek to engage in cryptocurrency-related activities. The Fed statement emphasized the following: “Any supervised banking institution that is already involved in crypto-asset-related activities should immediately notify the Fed's Supervisory Focal Point regarding participation in such activities if it has not yet done so. 


The press release advised supervised banking institutions to engage only in crypto-related activities that are legally permitted under the laws of the state in which the bank operates and applicable federal laws and to fulfill any reporting requirements.


On August 15, 2022, the Federal Reserve announced final guidelines that Reserve Banks can use to review requests for access to Federal Reserve accounts and payment services. “The new guidelines provide a consistent and transparent process for evaluating requests for Federal Reserve accounts and access to payment services to support a secure, comprehensive, and innovative payment system,” said Vice President Lael Brainard.


In June 2022, Custodia sued the Federal Reserve and the Federal Reserve Bank of Kansas City over its delay in an application for a master account. The master account provides banks with direct access to the Federal Reserve's payment systems, enabling them to offer many new financial products and services at a lower cost.


The latest additional information and final guidelines issued by the Federal Reserve make it clear that the cryptocurrency markets simply cannot be ignored. Oversight from regulators will be needed to bring about responsible growth and innovation in the cryptocurrency markets.

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