Federal Reserve Governor Michelle W. Bowman says the lack of clear regulation for crypto assets is putting financial institutions at risk.
In a speech delivered in Austria over the weekend, Governor Bowman says there is an oversight gap in how regulators oversee new banking ventures, including activities related to the crypto space.
According to the Fed governor, the uncertainty in digital asset policy puts banks in a “dangerous position”.
“An area that needs particular attention is the current approach to the supervision of new banking activities, which leaves financial institutions in a supervisory void. While some efforts have been made to provide guidance, significant uncertainty remains about the admissibility of and regulatory expectations for these activities, including banking as a service, digital assets and other emerging activities. This puts banks in the dangerous position of relying on blanket but non-binding statements from policymakers to be criticized at some point in the future.”
The Fed governor adds that banks could ultimately bear the brunt if regulators fail to address the oversight gap.
“These changes in supervisory approach can help address current shortcomings and build capacity to embrace, evolve and respond to emerging risks. Failure to follow this approach could have significant consequences for banks that charge higher interest rates while meeting the credit and financial needs of their customers.”
Bowman also says the lack of a clear regulatory framework for digital assets hurts investors who have already entered the markets.
“The lack of a clear regulatory and oversight approach creates the risk that regulators may determine that new activities are inadmissible or impose new requirements and expectations on these activities after the fact and, for some pioneers, after significant investments. If our role is effective oversight and regulation, we must be prepared to participate in both the new and traditional activities.”
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