The US Federal Reserve has removed “reputational risk” as a factor in bank supervision, a major win for the crypto industry that has struggled with banking access.
In simple words, this change means banks can no longer deny services to businesses, including cryptocurrency firms, just because they are seen as controversial.
For years, many cryptocurrency firms faced “debanking”, losing access to bank accounts because banks feared regulators would punish them for serving high-risk industries.
The Fed’s new policy amendments focus on financial risk instead of vague concerns about reputation. This could make it easier for crypto startups to open bank accounts, process payments, and operate like traditional businesses.
Crypto Wins as Fed Drops Controversial Banking Rule
The Fed was the last major banking regulator to scrap “reputational risk” from its rulebook. The Office of the Comptroller of the Currency (OCC) made a similar move recently. Fed Chair Jerome Powell had previously promised these changes after lawmakers blamed the rule for pushing crypto firms out of the banking system.
The letter reads: “Accordingly, while an institution’s financial performance is an important indicator of the adequacy of management, it is essential that examiners give significant weight to the quality of risk management practices and internal controls when evaluating the management and overall financial condition of banking organizations.”
With the Federal Reserve removing vague “reputational risk” concerns, banks may finally feel more comfortable working with the cryptocurrency domain. According to some experts, this change in the administration’s stance could bring many benefits for the entire cryptocurrency industry.
Crypto exchanges and startups have often struggled to open basic business accounts. Now, banks may be more willing to serve them. This will help the cryptocurrency market to gain mainstream adoption as it will provide much-needed financial access.
In the past, many cryptocurrency firms have faced abrupt banking cuts due to the fear of regulatory backlash. With clearer regulatory guidelines, banks will focus on real risks rather than just stigma.
Furthermore, the Fed’s decision to drop the reputational risk rule will provide easier access to banking, which means smoother operations for crypto companies. This will help crypto innovations expand their offerings to mainstream investors.
While this change will not fix every problem, as banks will still enforce strict anti-fraud and anti-money laundering checks, it removes an unfair hurdle that has held crypto back for years.
Under the crypto-friendly POTUS’s presidency, the cryptocurrency sector is expecting clear and favorable cryptocurrency regulations. US lawmakers have intensified their legislative efforts to form an inclusive digital currency policy.
For instance, on June 17, the Senate passed the GENIUS Act to provide clear regulatory guidelines for the USD-backed stablecoin market.
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