The Federal Reserve announced today in Washington, D.C., that it is ending a program that was created in 2023 to supervise U.S. banks involved in cryptocurrency and other new financial technologies.
According to the press release shared, the program initially requires banks to notify the Fed before offering services such as crypto custody, stablecoin issuance, or tokenization. But now, it will be replaced by the central bank’s normal supervisory process.
The decision follows what the Fed described as a stronger understanding of these activities, their risks, and how banks manage them.
“As a result, the Board is integrating that knowledge and the supervision of those activities back into the standard supervisory process and is rescinding its 2023 supervisory letter creating the program,” the Board said in a statement.
Why the Program Was Initially Created
The initiative had been introduced when regulators were trying to keep pace with fast-moving changes in financial technology. At the time, the Fed said these “novel” activities might raise new legal questions and create risks not fully addressed by existing oversight.
It also aimed to make sure banks engaging in crypto and fintech were following strict rules and reporting requirements. The program came under scrutiny from the crypto industry, which saw it as a way to discourage banks from serving crypto firms.
Moreover, its end comes shortly after President Donald Trump signed an executive order to stop what he called “unfair banking practices”. The order targeted guidance and programs that regulators allegedly used to push banks away from working with certain businesses based on ideology, religion, or politics.
End of “Operation Chokepoint” amid Political Shift
It also mentioned “Operation Chokepoint,” an effort critics say was used to cut off financial services to crypto companies and other lawful businesses. The Fed’s decision to shut down the special oversight program is seen as aligning with that directive.
The central bank confirmed that activities like crypto custody will now be treated under the same rules as custody for other assets. Last month, along with other banking regulators, the Fed stated that banks can hold digital assets for customers as long as they meet existing custody standards.
Senator Cynthia Lummis also posted on social media platform X, that it’s a big win for putting an end to Operation Chokepoint 2.0.
Lummis noted, “The Fed announced it’s killing the targeted supervision of digital asset banking activities. There’s still more to do, but this is real progress toward a level playing field for crypto.”
Fed Governor Michelle Bowman, who became vice chair for supervision earlier this year, has called for regulators to be “open to innovation in the banking system” while maintaining safety.
The Board said that with the knowledge gained from two years of monitoring crypto and fintech activities, it is confident in handling them through its usual regulatory channels.
Also Read: Trump’s Crypto Adviser David Bailey Plans to Buy $762M of Bitcoin
