"End of the account blocking era"...Major US regulatory shift, 'breathing room' for the crypto market

▲ Cryptocurrency regulation, Bitcoin (BTC)/AI generated image

The long-standing 'debanking' issue, a major concern for the virtual asset industry, has entered a resolution phase as US financial regulators decided to remove 'reputational risk' from their supervisory guidelines.

According to a report by cryptocurrency media outlet Cointelegraph on April 28 (local time), the Blockchain Association welcomed the final rule confirmed by the FDIC and OCC prohibiting the use of reputational risk. This measure strictly prohibits regulatory bodies from forcing financial institutions to close customer accounts or penalizing them based on political, social, or religious views. The virtual asset industry expects the disappearance of unfair practices where account openings were previously denied without clear criteria.

This policy change aligns with the Federal Reserve's completion of public comments on April 27 regarding its proposal to remove reputational risk from its supervisory program. The final rule jointly announced by the FDIC and OCC is set to officially take effect on June 9. Regulatory authorities plan to focus on specific financial risks during bank supervision, rather than the ambiguous concept of reputational risk.

Reputational risk has been criticized for being misused as a tool for "Operation Chokepoint 2.0," blocking banking services for virtual asset companies without clear financial grounds. Marta Belcher, President of the Blockchain Association, called this policy change a significant milestone, ending the unfair discrimination that marginalized virtual asset companies from financial services despite operating legitimate businesses. Senator Cynthia Lummis also supported the decision, pointing out that the reputational risk policy was used as a means to attack virtual asset businesses.

The virtual asset industry expects this regulatory easing to boost overall industry confidence and act as a catalyst for more traditional financial institutions to participate in related businesses. With reputational risk removed from supervisory guidelines, banks will only review the actual financial risks of a client's business model. This is expected to significantly lower barriers for virtual asset-related companies to open and maintain accounts, fostering a stable financial environment.

Regulatory authorities expect banks to comply with laws and regulations while maintaining robust risk management systems. Major virtual asset organizations, including the Blockchain Association, emphasized that training and monitoring of supervisors must be conducted in parallel to ensure consistent application of this rule in practice. Smooth communication between financial institutions and authorities is crucial at this time to ensure the effectiveness of the policy.

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