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The U.S. Federal Reserve favors innovation in digital financial products, but “it is easy to see the risks” in some new products, including cryptocurrencies, that would require new regulatory frameworks, Fed chair Jerome Powell said in a 23 March comment at a gathering of central bankers hosted by the Bank for International Settlements.
In assessing the need to regulate digital assets, the Fed will be guided by the principle of “same activity, same regulation,” he said.
The idea is that if a new product or service performs the same function as conventional financial products and services, then the innovation should be subject to the rules that govern those conventional activities.
“It’s highly likely that the digital financial activities that are currently outside the regulatory perimeter will be brought within it, which is necessary to level the playing field, keep trust of users, protect consumers, and all of that,” Powell said.
TREND FORECAST: As we noted in “SEC Push to Regulate Crypto” (7 Dec 2021), the SEC’s decision to permit Bitcoin ETFs (“Bitcoin ETFs in Prep as SEC Highlights Path to Approval,” 24 Aug 2021) was the key first step that legitimized government supervision and regulation of digital assets.
Congress will move to authorize federal controls over crypto as more asset managers and institutions begin offering blockchain-based products and services to clients.
When the authorization comes, the tasked federal agencies will move quickly to publish draft regulations, which already are being drafted.