FDIC issues new crypto-asset guidance and notification requirements

On April 7, the Federal Deposit Insurance Corporation (FDIC) issued a financial institution letter, Notification of Engaging in Crypto-Related Activities FIL-16-2022 (FIL), applicable to all FDIC-supervised institutions.

The FIL requires all such covered institutions that intend to engage in, or that are currently engaged in, any activities involving or related to crypto-assets to notify the FDIC and provide certain required information. The FDIC will review the information and provide relevant supervisory feedback. Covered institutions will need to evaluate their crypto-asset and digital asset activities and provide notice of such activities to the FDIC.

Pursuant to Section 39 of the Federal Deposit Insurance Act (FDI Act), the FDIC has established in Part 364 (including Appendices A and B) safety and soundness standards for all FDIC-supervised institutions. An FDIC-supervised institution that engages, or intends to engage, in any crypto-related activities should notify the FDIC and provide any information requested by the FDIC that will allow the agency to assess the safety and soundness, consumer protection, and financial stability implications of such activities. Institutions notifying the FDIC are also encouraged to notify their state regulator.

Definitions

For purposes of the FIL, “crypto assets” and “crypto-related activities” are defined as follows:

“[C]rypto asset”…refers generally to any digital asset implemented using cryptographic techniques. The term of “crypto-related activities” … includes acting as crypto-asset custodians; maintaining stablecoin reserves; issuing crypto and other digital assets; acting as market makers or exchange or redemption agents; participating in blockchain- and distributed ledger-based settlement or payment systems, including performing node functions; as well as related activities such as finder activities and lending.

The FIL acknowledges that the listing of crypto-related activities “is based on known existing or proposed crypto-related activities engaged in by FDIC-supervised institutions, but given the changing nature of this area, other activities may emerge that fall within the scope of this FIL. The inclusion of an activity within this listing should not be interpreted to mean that the activity is permissible for FDIC-supervised institutions.”

Timing

With respect to the required FDIC notification, the FIL requires an FDIC-supervised institution, before it engages in, or if it currently engages in, a crypto-related activity, to notify the appropriate FDIC Regional Director and provide “information necessary to allow the agency to assess the safety and soundness, consumer protection, and financial stability implications of such activities.” The notice “should describe the activity in detail and provide the institution’s proposed timeline for engaging in the activity.” The FDIC may request additional information, which may vary on a case-specific basis, depending on the type of crypto-related activity being performed.

Upon receipt of the notice, the FDIC will review it, request additional information as needed, and consider the safety and soundness, financial stability, and consumer protection aspects of the proposed activity. The FDIC will provide relevant supervisory feedback to the FDIC-supervised institution, as appropriate, in a timely manner.

For assistance in preparing such notices, please contact the authors.