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Fed: Uncertainty about digital assets is sending institutions into the ‘supervisory void’ trap.

Michelle Bowman, a member of the US Federal Reserve Board of Governors, criticized the lack of a clear regulatory framework for new technologies in the United States. Speaking at the Salzburg Global Workshop on Banking Regulation and Supervision, Bowman urged global regulators to pay attention to the ongoing supervision of new banking activities, in particular banking services and digital assets. According to Bowman, financial institutions have been left in a “supervisory void” in terms of new technologies. “While some efforts have been made to provide guidance, there remains considerable uncertainty about the admissibility and supervisory expectations of this activity […]. This puts banks in a precarious position when they rely on general, but power of politicians’ statements only to be criticized at some point in the future,” said Bowman, whose term at the Fed ends in 2034. In addition, Bowman spoke about the risks associated with the current state of regulation, noting that without a clear regulatory framework, regulators can impose new requirements on businesses after significant investments are made. “If our role is to be effective oversight and regulation, we must be prepared to engage in both new and traditional activities,” she added.

Bowman joins dozens of other politicians advocating a clear regulatory framework for digital assets. On June 20, ratings agency Moody’s warned that without support from U.S. lawmakers for digital asset-focused legislation, investors and companies could turn to other more cryptocurrency-friendly jurisdictions. Failure to provide financial institutions with a clear approach to new technologies “could have serious implications for banks using higher interest rates,” Bowman warned.

Lawmakers from the House Financial Services Committee and the House Agriculture Committee recently published a bill offering certain crypto assets a path towards being labeled digital goods. The bill would prevent the US Securities and Exchange Commission from denying registration of digital asset trading platforms as a regulated alternative trading system and would allow such firms to offer “digital goods and payment stablecoins.” Meanwhile, credit ratings agency Moody’s Investor Service said that without support from U.S. lawmakers on both sides of the political aisle for digital asset-focused legislation, investors and companies may turn to other crypto-friendly jurisdictions. In a June 20 report, Moody’s pointed to key differences in how Democrats and Republicans are handling cryptocurrency-focused U.S. legislation, specifically the competing language in the stablecoin bill and a bill aimed at providing a comprehensive legal framework for digital assets. Many of the questions between lawmakers are about whether regulation of stablecoins should be overseen at the federal or state level, and concerns consumer protection following the bankruptcy of many cryptocurrency firms in 2022. Moody’s has pointed to competing views on digital assets between Republicans, often represented by House Financial Services Committee Chairman Patrick McHenry, and Democrats, often represented by senior member Maxine Waters. Both voiced their concerns at a June 13 hearing on the future of digital assets, although Moody’s said the meeting “revealed even stronger political divisions” over the development of a cryptocurrency framework.

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