VICE chairman of the Federal Reserve for Supervision Michelle Bowman acknowledged that crypto companies experienced Debanking due to uncertainty of the regulations.
During the Wyoming Blockchain symposium on August 19, also Bowman announced a fundamental shift In the approach of the FED for blockchain innovation.
She unveiled the central bank Considerations of reputation risks eliminated Van Bankzorget at the end of June to tackle barriers that prevent financial institutions from serving digital activa companies that deal with legal activities.
The FED officer stated:
‘Your industry [crypto] has already experienced important frictions with banking regulations that apply unclear standards, conflicting guidance and inconsistent interpretations of the regulations. “
Bowman emphasized that banks should not receive fines for serving customers who perform legal business activities, which states that decisions of the customer selection “are exclusively within the reach of banking management” instead of legal interference.
She also noted that the transition from the Fed from an “overly careful mindset” to embracing blockchain technology within the traditional banking system is embraced.
She warned that supervisors should choose between shaping technological frameworks or allowing innovations to fully circumvent banks, which may reduce the economic relevance of the banking sector.
The FED updates research manuals and supervisory materials to ensure a permanent implementation of the policy for removing reputation risks.
Vier-Principle Regulatory Framework
The vice -chairman has set four core principles at the new approach to the Central Bank for Digital Assets Regulations.
Regular security is at the top of the list and focuses on the concern of industry about investing in blockchain development without clear supervisory standards.
Bowman wondered if companies would collaborate with banks, knowing that the investigation of the regulations entails uncertainty, instead of pursuing alternatives outside the banking system.
Tailor-made Regulation forms the second principle, whereby supervisors must evaluate usage on the basis of specific circumstances instead of applying sausage-case scenario expectations.
The FED must recognize unique characteristics that distinguish digital assets from traditional financial instruments, while avoiding one-size-fits-all approaches that do not tackle the actual risk profiles.
Consumer protection represents the third principle, as a result of which customer -oriented products meet the existing laws for consumer protection, including prohibitions against unfair, misleading or offensive practices.
Digital power frameworks must include the Bank Secrecy Act and anti-money laundering requirements while maintaining the bank’s safety and decorative standards.
The American competitiveness completes the framework and positions the US as the most important global innovation destination. Bowman warned that not determining suitable regulatory structures could endanger the long -term American leadership in the development of financial technology.
Technology -integration and supervision changes
Bowman has announced that the “new supervision” activities of the FED are re -integrated into reserve bank research staff, whereby normal supervisory processes are restored to monitor the innovative activities of banks.
She suggested to enable Federal Reserve staff to keep minimal digital assets to develop a working concept of blockchain functionality, comparing the need for hands-on learning instead of theoretical knowledge.
[Editor’s Note: This is an abrupt U-turn from previous government approaches, notably those of former SEC Chair Gary Gensler. Gensler taught college-level blockchain courses at MIT yet never actually touched a blockchain with his own funds, having admitted to never holding any digital assets and, therefore, never executing his own transactions.]
The FED acknowledges the tokenization potential for facilitating faster transfer of assets -ownership while the transaction costs and settlement risks are lowered. Bowman noted that banks of all sizes, including community institutions, can take advantage of the efficiency buyers that result from assets -tokenization technology.
She also emphasized that the brilliant act Passage and Presidential signature StableCoins position as integral components of the financial system, with implications for traditional payment rails.
Bowman called for industry involvement to help regulators understand the capacity of blockchain to solve additional problems outside the current usage scenarios.
She specifically asked input about the use of new technologies to combat fraud, and identified this as an exciting cooperation between the FED and the digital assets sector.
The VICE chairman of the FED concluded that supplementing innovation and regulations instead of resisting each other in creating more modern, efficient financial systems.