FED Issues Policy on Treatment of Novel Aspects by State Member Banks
The Board of Governors of the Federal Reserve System (FED) approved the application of Bank of Montreal (Canada) and BMO Financial Corp (of Delaware, US) to acquire BancWest Holding Inc and thereby indirectly acquire the Bank of the West, both of San Francisco, California. In addition, FED also denied the application of Custodia Bank Inc (Wyoming) to become a member of the Federal Reserve System, on the grounds that the application of Custodia Bank was inconsistent with the required factors under the law. FED also issued a policy statement on possible limiting of the activities of a state member bank, under the Federal Reserve Act, to align the permissibility frameworks for both uninsured and insured state member banks.
The policy statement highlights that uninsured and insured banks supervised by the FED will be subject to the same limitations on activities, including those for novel banking activities such as crypto-asset related activities. The policy statement reiterates to state member banks that legal permissibility is a necessary, but not sufficient, condition to establish that a state member bank may engage in a particular activity. A state member bank must at all times conduct its business and exercise its powers with due regard to safety and soundness. For instance, a bank should have in place risk management processes, internal controls, and information systems that are appropriate and adequate for the nature, scope, and risks of its activities. With respect to any novel and unprecedented activities, such as those associated with crypto-assets or use of distributed ledger technology, it is particularly important for a state member bank to have in place appropriate systems to monitor and control risks, including liquidity, credit, market, operational (including cybersecurity and use of third parties), and compliance risks (including compliance with Bank Secrecy Act and Office of Foreign Asset Control requirements to reduce the risk of illicit financial activity). FED supervisors will expect state member banks to be able to explain and demonstrate an effective control environment related to such activities.
The policy statement also specifies how the FED will evaluate inquiries or proposals on certain crypto-asset related activities, consistent with longstanding practice. Nothing in the policy statement would prohibit a state member bank, or an applicant to become a state member bank, once approved, from providing safekeeping services for crypto-assets in a custodial capacity if such activities are conducted in a safe and sound manner and in compliance with consumer, anti-money-laundering, and anti-terrorist-financing laws. FED believes that the principle of equal treatment will promote a level playing field among banks with different charters and different federal supervisors and help mitigate the risks of regulatory arbitrage. The policy statement will come in effect from February 07, 2023.
Related Links
Keywords: Americas, US, Banking, Policy Statement, Federal Reserve Act, DLT, Crypto-Assets, Internal Controls, FED
Previous Article
BoE and HMT Consult on Digital Pound, Issue Other Regulatory UpdatesNext Article
French Regulators Issue Reporting Updates for BanksRelated Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
