Financial institutions are trapped in a “supervisory void” as they navigate the uncertain landscape of digital assets, warned Federal Reserve Governor Michelle Bowman. Speaking at the Salzburg Global Seminar on bank regulation and supervision, Bowman called for global regulators to pay attention to the current oversight of novel banking activities, particularly banking as a service and digital assets.
Despite some efforts to provide guidance, significant ambiguity surrounds the permissibility and supervisory expectations for these activities. This leaves banks in a precarious position, relying on general but non-binding statements by policymakers that may be criticized in the future.
According to Bowman, the risks posed by the current regulatory environment could have substantial consequences. Without a clear regulatory framework, regulators may impose new requirements on businesses after significant investments have been made. To effectively supervise and regulate, she believes we must engage in both novel and traditional activities.
Bowman’s concerns are echoed by many others advocating for a clear regulatory framework for digital assets. Ratings agency Moody’s warned on June 20 that investors and companies could turn to crypto-friendly jurisdictions if the U.S. lawmakers don’t provide support for digital assets-related legislation. Lawmakers within the House Financial Services Committee and House Agriculture Committee have recently released a draft discussion offering certain crypto assets a pathway to be labeled digital commodities.
The draft bill would prohibit the U.S. Securities and Exchange Commission (SEC) from denying digital asset trading platforms registration as a regulated alternative trading system and allowing firms to offer “digital commodities and payment stablecoins.”
Bowman cautioned that the failure to provide a clear approach for financial institutions on novel technologies could have serious implications for banks navigating higher interest rates. With the rapid pace of technological innovation, establishing regulatory frameworks that can offer guidance for financial institutions is proving to be a crucial and challenging task in ensuring the stability and growth of the digital asset market.
Source: Cointelegraph
