Uncertainty over digital assets traps institutions in ‘supervisory vacuum’ – Fed governor

During a speech at the Salzburg Global Seminar on Bank Regulation and Supervision, Baumann called on global regulators to focus on innovative banking activities, especially banking as a service and the current monitoring of digital assets. According to Bowman, financial institutions have been left in a “supervisory vacuum” when it comes to emerging technologies.

“While some efforts have been made to provide guidance, there remains considerable uncertainty regarding the permissibility and supervisory requirements of these activities (…). This allows banks to rely only on general but non-binding statements from policy makers. That leaves it in a dangerous position to be criticized at some point in the future,” said Bowman, whose term at the Fed ends in 2034.

Governor Bowman’s speech on bank regulation and supervision: https://t.co/LzwsKieEcx

– Federal Reserve (@federalreserve) 25 June 2023

Furthermore, the governor spoke about the risks posed by the current regulatory situation, noting that without a clear regulatory framework, regulators could impose new requirements on businesses after significant investments have been made. “If our role is to be effective supervision and regulation, we must be prepared to engage in both innovative and traditional activities,” he added.

Bowman joins dozens of other voices calling for a clearer regulatory framework for digital assets. Ratings agency Moody’s warned on June 20 that investors and companies could turn to other crypto-friendly jurisdictions without support from US lawmakers for legislation focused on digital assets.

Lawmakers from the House Financial Services Committee and the House Agriculture Committee recently released a draft discussion offering a path to label some crypto assets as digital commodities. The draft bill would prevent the US Securities and Exchange Commission (SEC) from denying registration to digital asset trading platforms as a regulated alternative trading system and would allow such companies to offer “digital goods and payment stable coins”.

Bowman warned that failure to provide a clear outlook for financial institutions on the new technology “could have significant consequences for banks adopting higher interest rates.”

Michelle Bowman, member of the Board of Governors of the US Federal Reserve System criticized Lack of a clear regulatory framework for innovative technologies in the United States.

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