Vice Chair Michelle Bowman, responsible for regulatory affairs at the Federal Reserve, acknowledged that cryptocurrency companies have faced disruptions in banking services due to regulatory uncertainty.
On August 19 at a blockchain seminar in Wyoming, Bowman also announced that the Federal Reserve's attitude towards blockchain innovation would undergo a fundamental shift.
She revealed that the Federal Reserve removed 'reputational risk considerations' from banking supervision at the end of June, eliminating barriers for financial institutions to service legitimate digital asset companies.
This Federal Reserve official stated: 'Your (cryptocurrency) industry has long faced numerous obstacles due to banking regulators adopting vague standards, issuing contradictory guidance, and making inconsistent regulatory interpretations.'
Bowman emphasized that banks should not face penalties for servicing legitimate businesses and pointed out that customer choice decisions 'are entirely within the purview of bank management' and not subject to regulatory intervention.
Additionally, she mentioned that the Federal Reserve has shifted from an 'excessively cautious mindset' to begin supporting traditional banking systems in embracing blockchain technology.
She warned that regulators must choose between 'establishing a technological framework' and 'allowing innovation to completely bypass banks,' the latter of which could undermine the economic relevance of the banking sector.
Currently, the Federal Reserve is updating its review manual and regulatory materials to ensure the long-term implementation of the 'removal of reputational risk' policy.
Bowman proposed four core principles guiding the Federal Reserve's new direction for digital asset regulation.
'Regulatory certainty' is the primary principle aimed at addressing the industry's concerns about 'lack of clear regulatory standards, which discourages investment in blockchain development.'
Bowman questioned whether businesses would choose to collaborate with banks knowing that doing so would involve regulatory uncertainties, rather than turning to alternative solutions outside the banking system.
'Targeted regulation' constitutes the second principle, requiring regulators to assess application scenarios based on specific circumstances rather than relying on 'worst-case' presumptions.
The Federal Reserve must recognize the unique differences between digital assets and traditional financial instruments while avoiding a one-size-fits-all approach that fails to address actual risk situations.
'Consumer protection' is the third principle, ensuring that customer-facing products comply with existing consumer protection regulations, including prohibiting unfair, deceptive, or abusive practices.
The digital asset regulatory framework must incorporate the Bank Secrecy Act and anti-money laundering requirements while maintaining banks' safety and soundness standards.
'U.S. competitiveness' forms the final component of this framework, aiming to position the U.S. as the world's premier innovation destination. Bowman warned that if a reasonable regulatory framework cannot be established, the U.S.'s long-term leadership position in financial technology development may be at risk.
Bowman announced that the Federal Reserve's 'innovative regulation' efforts will be reintegrated into the Reserve Bank review team, restoring the regular regulatory process for bank innovation activities.
She proposed allowing Federal Reserve staff to hold a small amount of digital assets to gain a deeper understanding of how blockchain operates, comparing this necessity to practical learning rather than theoretical study.
Editor’s note: This marks a stark shift in the U.S. government's previous stance, especially compared to former SEC Chairman Gary Gensler's position. Gensler previously taught university-level blockchain courses at MIT but admitted he has never held any digital assets or personally executed any transactions, meaning he has never interacted with blockchain using his own funds.
The Federal Reserve recognizes that tokenization helps accelerate asset ownership transfers while reducing transaction costs and settlement risks. Bowman pointed out that banks of all sizes, including community institutions, can benefit from the efficiency gains brought by asset tokenization technology.
Additionally, she emphasized that the passage of the (GENIUS Act) and its signing by the president has positioned stablecoins as an important component of the financial system, which has far-reaching implications for traditional payment channels.
Bowman called for industry participation to help regulators understand the capabilities of blockchain to solve more problems beyond existing application scenarios.
She specifically requested the industry to provide advice on how to leverage new technologies to combat fraud, viewing it as an important opportunity for collaboration between the Federal Reserve and the digital asset sector.
Bowman concluded by stating that in building a more modern and efficient financial system, innovation and regulation should complement each other rather than oppose one another.