Federal Reserve governor Michelle W. Bowman has acknowledged that despite the growth of cryptocurrencies they are an area of concern, especially in relation to the banking sector.
According to Bowell, cryptocurrencies raise several issues and the regulatory outlook should be ready to accommodate the emerging technology, she said during a session with the Institute of International Finance (IIF) on September 30.
The governor, however, stressed that the fast-evolving technology around cryptocurrencies can make it challenging to implement some rules. For instance, Bowell noted that the challenges emerge if players in the financial sector lack experience with regulations to cater for crypto assets alongside the ambiguity of the laws.
“Another area where regulation and supervision continues to evolve is around banks engaging in crypto-asset activities. These activities raise a number of significant issues. When I think about the evolution of supervision and regulation of these activities, I ask myself whether the rules are clear in the current rapidly evolving environment and whether the rules as they evolve are serving a legitimate prudential purpose,” said Bowell.
During the session, Bowell noted that banks can engage in crypto-related activities but should first understand supervisory expectations. However, she called for more dialogue to find the right regulatory outlook. According to Bowell:
“The adoption and use of new technologies may present novel supervisory concerns, but the best way to address these concerns and encourage innovation is a dialogue between bankers and supervisors before and during the development and implementation of those technologies.”
Furthermore, the official stressed that banks need to have a clear regulatory framework that can match the risk associated with the cryptocurrency sector’s price volatility.
She pointed out that one consideration to look out for is to find means of incorporating crypto into banking or pushing digital assets outside banking.
SEC’s criticisms over crypto regulations
In this line, it is worth noting that the United States Security Exchange Commission (SEC) has previously come under criticism for failing to provide clear guidance in the regulation of cryptocurrencies, especially on classifying commodities and securities.
Critics of the SEC argue that the agency is implementing crypto oversight against different entities yet no specific laws exist targeting digital currencies. In this line, the agency has faced criticism over alleged plans to stifle the growth of cryptocurrencies.
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