U.S. banking regulators are relaxing regulations on encryption asset activities

U.S. financial regulators are developing a more flexible and transparent regulatory framework for banks to participate in encryption asset activities, including allowing the use of public permissionless blockchains.

Recently, the acting chairman of the Federal Deposit Insurance Corporation ( FDIC ) elaborated on the agency's continuously adjusting stance on encryption-related activities at a financial summit.

Public Blockchain User Guide

One key area that the FDIC is reviewing is the interaction between regulated banks and public permissionless blockchains. While other countries have long allowed banks to use public chains, U.S. regulators have maintained a relatively conservative stance.

The FDIC now believes that a complete ban on the use of public chains is too strict, but emphasizes the need for appropriate safeguards. The agency is evaluating existing inter-agency guidance to establish long-term standards for the responsible use of public networks.

Regulators are also considering whether public chains can operate in a permissioned model, as well as how to define and regulate blockchain configurations that blur the boundaries between open and permissioned environments.

Further guidance will be issued soon.

The FDIC stated that it will release more guidance on specific use cases for digital assets. The agency will continue to evaluate unresolved issues such as the scope of encryption-related activities, regulatory treatment of blockchain-based products, and expectations for bank risk management.

The overall goal is to establish a consistent and transparent regulatory framework that promotes innovation while ensuring compliance with safe and sound standards.

The FDIC recently stated that the revised guidelines represent a fundamental shift in the attitude towards encryption assets and blockchain technology within the U.S. banking system. The agency has rescinded the previous requirement for regulated institutions to notify before engaging in digital asset activities.

Stablecoin Regulation and Deposit Insurance

The FDIC is reviewing potential updates to transitional deposit insurance regulations to clarify the eligibility requirements for stablecoin reserve deposits. Key issues include liquidity risk management, anti-money laundering safeguards, and cybersecurity standards.

The institution is considering whether to further clarify the boundaries for permitted activities or to expand regulatory guidance to cover more use cases.

Tokenized Deposits and Smart Contract Risks

The FDIC also emphasized the need for clearer regulation of tokenized real-world assets and liabilities (, including tokenized bank deposits ). The agency believes that "regardless of the technology or record-keeping method used, a deposit is a deposit."

However, regulators are concerned that after bank failures, counterparties may withdraw funds at face value through smart contracts. This could increase clearing costs, so the FDIC is evaluating technological solutions to prevent unexpected outflows of funds in bank resolution scenarios.

These changes by the FDIC indicate that the agency is moving towards providing regulatory clarity for banks exploring digital asset infrastructure, while emphasizing the need for prudent risk control and further clarification of the scope of permitted activities.