The US Federal Reserve Commission on Monday directed supervisors to remove “reputation risks” from the bank surveillance program. Under these guidelines, industries were considered risky by central banks such as cryptocurrencies and faced major challenges in establishing or maintaining banking relationships.
Cryptographers have long argued that this premise is being used to unfairly target more than 30 technologies and crypto companies.
US banking regulators remove “reputation risk” rule that blocks crypto services
The Federal Reserve defines well-known risks as potential cases where negative publicity about an agency’s business practices, whether true or not, can lead to a decline in customer base, costly litigation, or revenue reductions.
In a statement released on June 23, the Federal Reserve Committee said it had begun to review and remove references to reputation and reputation risk from supervisory materials, replacing it with a more “specific discussion” surrounding financial risk. Regulators will also train examiners to ensure that changes are consistently implemented across all banks under their supervision.
The move took a similar approach earlier this year, putting it on equal footing with federal bank regulators such as the Federal Deposit Insurance Corporation (FDIC) and the Secretary of Currency.
In May, the US Secretary of Currency Office confirmed that banks under its jurisdiction are permitted to trade cryptocurrencies on behalf of their clients and outsource crypto-related activities to third parties. In March, the FDIC announced that agencies under the regulatory regime can engage in crypto-related activities without prior approval.
These three agencies oversee all federal insurance depository institutions in the United States, and their coordinated revisions eliminate the controversial standards that claim that experts allowed regulators to block banking services to crypto companies and that banks would provide simple crypto-related services such as buying and selling cryptocurrency on behalf of sales customers.
Despite the updated guidelines, the Federal Reserve emphasized that it still hopes banks will maintain a robust risk management framework that complies with all laws and regulations. The agency also made it clear that supervisors need to address reputational effects only through specific legal, liquidity, or credit channels.
The statement noted that the change is not intended to affect banks overseen by the board.
Fed chair: Central banks don’t want to restrict banks – Crypto
In a speech at the Chicago Economic Club on April 16, Federal Reserve Chairman Jerome Powell built the Foundation for Rules Change, where he urged the US Congress to establish a stable framework.
At the time, genius was still under consideration in Congress. However, since then, the Landmark US stability law passed the Senate by 51-23 votes on June 17, with the draft bill sent to the House for further consideration.
Powell acknowledged the conservative stance that regulators took it from a crypto perspective after the 2022 market clash, but said some of the central bank’s guidance could be eased to meet “responsible innovation” in the sector. This allows banks to engage in Crypto Custody Services under supervision. He also committed to maintaining consumer protection measures and ensuring agencies can engage with digital assets in ways that regulators understand.
The Fed’s chairman’s remarks reflect his testimony in Congress in February, confirming that the existing supervision framework allows banks to handle crypto as long as the institution manages capital, liquidity and operational risks.
The latest directive completes three months of efforts by US regulators and removes reputational risk as a conditional from the bank’s supervision policy. This leaves operational standards and financial standards as the sole basis for the examiner’s actions.
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Lawmakers and bankers welcome new rules to integrate cryptography into banking services
Senator Cynthia Ramis is one of the strongest supporters of cryptocurrency among lawmakers and co-sponsor of the Bitcoin Act, a law aimed at establishing a US strategic Bitcoin stockpile, said the past “said by the Fed’s aggressive reputation risk policy in the assassinated US Bitcoin and digital arts business.” She called the change a “winner” for the sector but said there was still more to be done.
Rob Nichols, president and CEO of the American Bankers Association, a lobby group for US banks, has issued a statement praising the Fed’s decision, stating that the change will make the supervisory process more transparent and consistent. He added that he has long believed that member banks of the association should be able to make business decisions based on sensible risk management and free markets, rather than the “individual perspective” of regulators.
However, critics argue that by eliminating reputational risk guidelines, it obscures non-financial issues, affects bank stability, weakens regulatory oversight, and potentially fueled bank practices are possible.
Nevertheless, US regulators and watchdogs have begun repealing previously held restrictions on cryptographic activity. The move promises President Donald Trump to declare clear support for the digital asset industry, introduce friendly regulations and sign an executive order establishing federal strategic Bitcoin reserves and digital asset stockpile.
