: U.S. Banks Must Ask for Permission to Interact with Stablecoins
• The U.S. Federal Reserve has published a regulation letter on Wednesday outlining its new rules on “tokens denominated in national currencies and issued using distributed ledger technology,” otherwise known as stablecoins.
• Banks need to ask for permission before interacting with stablecoins, and demonstrate they have established controls to mitigate risks associated with the activity.
• More than one-third of commercial banks in the US are Fed members, according to the Federal Reserve Bank of Richmond.
New Rules For U.S Banks Interacting With Stablecoins
The U.S. Federal Reserve has released new regulations regarding how state member banks interact with stablecoins denominated in national currencies and issued using distributed ledger technology. More than one-third of commercial banks in the US are Fed members, according to the Federal Reserve Bank of Richmond.
Banks Must Ask for Permission Before Interacting With Stablecoins
Under the newly released regulations, all state member banks must receive written notification from the Federal Reserve before engaging in activities related to issuing, holding or transacting with dollar tokens (stablecoins) to facilitate payments. This includes testing out such activities as well – even if just for experimentation purposes – requiring banks to get permission beforehand from their supervisors at the Fed.
Risk Management Practices
To receive authorization from supervisors at the Fed, banks must demonstrate that they have established “appropriate risk management practices” that address operational, cybersecurity, liquidity, illicit finance and consumer compliance risks associated with interacting with stablecoins.
OCC Interpretive Letter 1174
The regulation letter was based on OCC Interpretive Letter 1174 which outlines what activities state member banks can engage in when dealing with dollar tokens (stablecoins).
Conclusion
The new regulations put forth by the Federal Reserve will ensure that all state member banks are compliant when it comes to interacting with stable coins and crypto assets while mitigating any potential risks involved in doing so – ultimately creating an environment where innovation can thrive without compromising safety or soundness within banking institutions across America
