FDIC Updates Its Guidelines, Permitting Banks to Engage in Crypto-Related Activities Without Prior Approval

The Federal Deposit Insurance Corporation (FDIC) has updated its guidelines, permitting banks to engage in crypto-related activities without prior approval.

The Federal Deposit Insurance Corporation (FDIC) has updated its guidelines, permitting banks to engage in crypto-related activities without prior approval. This shift marks a departure from earlier policies that required banks to notify the FDIC before participating in cryptocurrency and blockchain-related services.

The move comes as part of the FDIC’s ongoing efforts to establish clearer rules for financial institutions involved in digital assets.

The new guidance from the FDIC, displayed in the agency’s agenda for the upcoming meeting, cancels a 2022 policy that required FDIC-supervised institutions to notify the agency before engaging in crypto-related activities.

The previous requirement was established in the Financial Institution Letter (FIL-16-2022) that made it mandatory for any institution intending to engage in crypto activities to seek approval from the institution.

This new directive also means that banks are allowed to engage in business models that involve cryptocurrencies and other digital assets provided that the risks are managed well.

Announcing the decision, the FDIC’s acting chairman, Travis Hill said, “By today’s decision the agency rejects the erroneous policy of the last three years.”

However, the FDIC stressed that banks need to continue implementing standard safety measures for handling crypto operations, including operational risk, cybersecurity risk, and market risk.

The new policy, which is part of broader regulatory changes in the U.S.

financial sector to adapt to technological advancements, means that banks supervised by the FDIC may participate in activities in innovations, including blockchain and crypto-assets, without necessarily seeking approval from the FDIC in advance.

Nevertheless, the agency clarified that risk assessment and management remain obligatory for banks as well as liquidity risks, consumer protection, and measures against money laundering (AML).

The newly proposed approach corresponds with the FDIC’s mission in overseeing the safety and soundness of banks while at the same time permitting corresponding innovation in the banking industry. The agency also stated that it would coordinate with other authorities to level up more directives to be followed for crypto-related operations that are acceptable with the banking system.

The change in the FDIC guidelines has been seen as positive by representatives from the industry as it undeniably moves the crypto further in to the banking sphere.

According to Bo Hines, who serves as the executive director of the President’s Council of Advisers for Digital Assets, the decision is a "big win" for the sector. This means that the entry of the banks to the new digital asset market has experienced less hurdle by eliminating previous approval requirements by the FDIC.

The new guidelines are also part of a broader shift in regulatory attitudes toward cryptocurrencies, following similar actions by other U.S. financial regulators. Earlier this month, the Office of the Comptroller of the Currency (OCC) also loosened restrictions on crypto-related activities for federally chartered banks.

While the new guidance provides more freedom for banks to engage in crypto-related activities, the FDIC has emphasized that it will continue to engage with the President’s Working Group on Digital Asset Markets. The FDIC also expects to issue further guidance in the future to provide more clarity on specific crypto-related activities, such as custodial services and lending platforms.