U.S. Fed withdraws 2023 guidance limiting bank innovation…eases environment for participation in new-technology businesses such as virtual assets

The U.S. Federal Reserve (Fed) has withdrawn the 2023 policy statement that had limited banks' innovative financial activities and issued a new policy statement. As a result, there is a possibility that the environment for Fed-supervised banks to participate in virtual asset and new-technology related businesses will be eased.

The Fed board said in a statement on the 17th (local time) that it officially withdrew the policy guidance issued in 2023 and adopted a new policy statement supporting "responsible innovation." Michelle W. Bowman, the Fed's Vice Chair for Supervision, said, "New technologies can improve banks' efficiency and provide better products and services to customers," adding that the move "lays out a path to create a modern and efficient financial system while maintaining safety and soundness."

The withdrawn 2023 policy statement had contained provisions that restricted the scope of activities of state member banks supervised by the Fed to the same level as banks supervised by other federal banking regulators. In particular, it set strict application standards for innovative financial products and services and had effectively been used as a basis to block some banks' virtual-asset related activities.

The Fed explained that understanding of the financial environment and innovative technologies has changed significantly since that guidance was issued. Accordingly, it determined that the existing policy was no longer appropriate and withdrew it, and through the new policy statement opened a path for Fed-supervised state member banks to engage in innovative activities under certain conditions regardless of whether they are covered by deposit insurance.

Relatedly, Eleanor Terrett, a former Fox Business reporter, wrote on her X account that "the Fed has withdrawn the 2023 guidance that had effectively blocked uninsured banks' Fed membership and participation in virtual assets," noting that "this guidance was the rule that served as the basis for denying Custodia Bank's master account application."

Market observers say this decision could represent an important turning point for the resumption or expansion of U.S. banks' virtual asset and blockchain-related businesses. However, the Fed emphasized "responsible innovation" and maintained that the specific scope of activities and supervisory standards will be strictly reviewed on a case-by-case basis.