Fed to sunset program overseeing banks’ use of emerging tech

The Federal Reserve announced Friday the end of a program created in 2023 intended to supervise how banks use emerging technologies, echoing changing attitudes in Washington toward crypto, blockchain and artificial intelligence.

Its decision to end the Novel Activities Supervision Program, launched two years earlier primarily to monitor crypto adoption, reflects the central bank’s improved understanding of the use cases and risks associated with developing technologies, the Federal Reserve Board said.

“Since the Board started its program to supervise certain crypto and fintech activities in banks, the Board has strengthened its understanding of those activities, related risks, and bank risk management practices,” a press release from the Federal Reserve said.

Going forward, supervision of how banks use crypto and other technologies will be integrated back into the standard supervisory process, the Fed said. The timeline for when the program will be officially terminated was not mentioned in the press release

.When the program monitoring so-called novel risks was originally launched, the Fed stressed it would support innovation while safeguarding bank customers, banking organizations and financial stability. Banks using emerging tech were not moved to a separate supervisory program, but greater oversight over adopters was implied.

From the outset, opinions of the program were split.

Many in the banking and crypto industries interpreted it, and other guidance around emerging technologies, as a de facto ban on banking crypto, one that left it legally permissible but with a high bar for supervisory compliance. 

Others, however, welcomed the guidance and the creation of a supervisory framework specifically for novel activities.

“BPI supports efforts that encourage regulated financial institutions to responsibly explore the benefits of blockchain and other novel technologies,” said Paige Pidano Paridon, Bank Policy Institute senior vice president and senior associate general counsel, in a statement following the program’s announcement. “Banks are subject to extensive prudential, consumer, anti-money-laundering, cybersecurity and data security requirements and, unlike nonbanks, can innovate without sacrificing safety.”

Apart from terminating its emerging tech supervisory program, the Fed has been notably rolling back other policies related to crypto use. In late April, the central bank rescinded two supervisory letters, one from 2022 directing member banks to provide advance notice of their plans to begin engaging in crypto activities, the other a 2023 policy instructing them to get a supervisory non-objection for dollar tokenization activity. 

The Fed, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency also withdrew joint guidance on bank engagement in crypto activity originally published in early 2023. 

In a statement, the Fed said the moves were made to “ensure the Board’s expectations remain aligned with evolving risks and further support innovation in the banking system.”

The developments come as part of the federal government’s more crypto-positive approach ushered in by President Donald Trump’s return to the White House.

After taking office, President Trump signed into law an executive order on AI, removing perceived hindrances to innovation, while most recently signing into law a stablecoin bill establishing basic rules around stablecoin issuers for the first time.