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Feds Launch Supervision Program to Keep Eye on DLT, Fintech and Crypto

The U.S. crypto sector is set to experience increased regulatory scrutiny from the Federal Reserve, as an initiative known as the Novel Activities Supervision Program comes into play. This program has been designed with the primary aim of bolstering the monitoring of pioneering activities undertaken by financial institutions under the purview of the central bank.

According to an official statement released by the Fed Board (FRD), this novel initiative will center its focus on groundbreaking endeavors associated with distributed ledger technology, crypto assets, and technology-driven collaborations with nonfinancial entities aimed at providing financial services to clientele.

The Federal Reserve has outlined that the primary emphasis of this program will be on identifying risks inherent in the market. It has been designed to complement the pre-existing supervisory procedures, functioning as an avenue to fortify the oversight of unconventional undertakings executed by supervised financial institutions.

Given the innovative nature of these activities, the Federal Reserve has stressed the importance of clarifying their permissibility. Furthermore, concerns have emerged regarding their potential impacts on the wider financial system that have not been adequately addressed through the existing supervisory methodologies.

This newly introduced program will operate in conjunction with the existing supervisory teams within the Federal Reserve, tasked with the monitoring and examination of groundbreaking activities conducted by the supervised financial institutions. Rather than establishing a distinct “supervisory portfolio,” this initiative is set to seamlessly integrate into the existing supervisory frameworks, capitalizing on ongoing supervisory processes to optimize efficiency and minimize administrative burdens.

The extent and rigor of supervision imposed on a financial institution will be calibrated based on the level of their involvement in pioneering ventures. The Federal Reserve will issue notifications to those institutions that will be subjected to scrutiny under this program.

Moreover, the central bank has outlined its intentions to regularly monitor establishments that are exploring groundbreaking activities. This process will include periodic evaluations to determine which financial institutions should be subjected to scrutiny for their innovative initiatives. Timely notifications will be dispatched to these institutions accordingly.

A panel of accomplished experts spanning various domains within the Fed has been selected to provide guidance for this program, ensuring its foundation is rooted in diverse perspectives and best practices related to supervision and risk management. In addition, the program will actively engage with luminaries from academia, finance, technology and the banking sector to remain attuned to emerging trends, technologies and novel products.

The program’s operational framework will incorporate insights drawn from real-time data analysis, market surveillance and comprehensive assessments along with proactive, purposeful exchanges of information across regulatory agencies and portfolios and with other stakeholders.

If this monitoring group yields the regulatory framework that companies such as Marathon Digital Holdings Inc. (NASDAQ: MARA) have been waiting for, it will be a significant relief for all concerned, given the regulatory uncertainty that has clouded the crypto industry for so long.

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