FDIC Official Wants Clearer Guidance to Encourage Bank Experimentation in Emerging Techs Like Crypto
On Monday, March 11, 2024, Travis Hill, vice chair of the Federal Deposit Insurance Corp., said the agency’s cautious approach to cryptocurrency needs more clarity to avoid discouraging banks from exploring emerging technologies.
In a speech at George Mason University, Hill argued the FDIC’s current policy of requiring pre-approval for crypto activities makes it difficult for banks to understand what is allowed. The confidential consultation process can take a long time, leaving banks unsure how regulators may view potential plans.
This leaves the impression that the FDIC is “closed for business” on anything crypto-related, according to Hill. While large banks have the resources to determine what may be approved, most industry participants receive the message to “don’t bother trying.”
Hill believes the FDIC should provide more upfront guidance on permissible crypto activities and distinguish the underlying technologies like blockchain from digital assets. Tokenized bank deposits represented on a blockchain, for example, should be treated the same as regular deposits unless the FDIC has a substantiated reason not to.
The agency should also allow testing of new technologies with minimal risk without lengthy approval, said Hill. And if pre-approval is still required, regulators must give clear and timely feedback to banks.
Other banking regulators like the Federal Reserve and Office of the Comptroller of the Currency also require pre-consultation on crypto plans. However, Hill argued this cautious approach may discourage innovation and investment in emerging technologies. With other jurisdictions taking different stances, it could send business abroad.
While acknowledging the need for oversight, Hill said the opportunities of technologies like tokenization should not be hindered. Citing the early growing pains of credit cards, he said regulators “should certainly be humble” about predicting the future.
Hill further questioned the SEC’s accounting guidance on crypto custody, which critics say makes it too difficult for banks. With less regulated providers dominating as a result, Hill asked if excluding banks is wise. The guidance’s broad definition of “crypto asset” could also capture tokenized traditional assets, he said.
In conclusion, Hill called for more clarity from regulators and flexibility for tested innovations. A poor approach, he argued, risks losing economic benefits and ceding influence to other countries as financial technologies continue evolving globally.
