Crypto Industry Wins! FED Ends Controversial Reputational Risk Rule!
In its supervision of banks, the US Federal Reserve says it has instructed its supervisors to stop taking reputational risk into account. This risk factor was unfairly utilized to target and debank crypto companies, according to the crypto industry’s long-standing argument.
Banking partnerships are extremely difficult to create or sustain in industries that are considered risky. When over 30 IT and cryptocurrency companies were refused banking services in the US, this was the driving force behind what is known as Operation Chokepoint 2.0.
Fed’s New Guidelines Could Transform Crypto Banking Landscape
The Federal Reserve Board announced Monday that it has started going through its supervisory documents and eliminating any mentions of reputation and reputational risk. More specialized talks on financial risk are taking the place of these references.
The board also intends to provide examiners with training and guarantee that the adjustment is applied uniformly among the banks that fall under its purview. To encourage uniform processes, it is also collaborating with other federal bank regulatory organizations.
The Federal Reserve Board stated that it still expects banks to maintain robust risk management that conforms with all legal requirements, even with the modification. Additionally, the modification is not meant to affect whether or not board-supervised institutions incorporate the idea of reputational risk into their own risk management procedures.
Cynthia Lummis Slams Fed’s Past Policies: “Crypto Companies Were Destroyed”
Reputational risk, according to the Federal Reserve, is the possibility of unfavorable press on an organization’s operations, whether or not it is accurate. This kind of risk may result in fewer clients, expensive legal action, or lower sales. According to US Senator Cynthia Lummis, American Bitcoin and digital asset companies were destroyed by the strict reputation risk regulations.
This is a win, but there is still more work to be done.
Lummis
In a statement, Rob Nichols, president and CEO of the American Bankers Association, a lobbying organization for the banking industry, praised the ruling as well.
The change will make the supervisory process more transparent and consistent. We have long believed banks should be able to make business decisions based on prudent risk management and the free market, not the individual perspectives of regulators,
Nichols
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