On Monday, May 17, 2021, the Federal Deposit Insurance Corporation (“FDIC”) issued a request for information and comment (“RFI”) regarding the current and potential digital asset activities of insured depository institutions (“IDIs”).  The RFI is intended to inform the FDIC’s understanding of digital asset activities, including associated risk and compliance management issues.  Comments on the RFI are due by July 16, 2021.

The RFI categorizes digital asset activities into five use cases and solicits comments based on this framework.  The five use cases are (i) technology solutions, such as token-based systems and distributed ledgers; (ii) asset-based activities, such as investments and margin lending; (iii) liability-based activities, such as deposit services and reserves; (iv) custodial services; and (v) other activities, which could include market-making and decentralized financing.  The RFI requests comment on whether additional use cases should be included within this framework and which use cases have the greatest demand in the marketplace.  The RFI also requests that commenters provide more detailed information about the use cases that IDIs currently conduct or are considering conducting.

In addition to seeking comment on the use case framework itself, the RFI asks questions with respect to:

  • Risk and compliance management. Among other questions, the RFI requests comment on the extent to which IDIs’ existing risk and compliance management frameworks are designed to address the risks associated with digital asset activities, whether IDIs must develop new risk and compliance frameworks to address certain of these risks, and how IDIs can integrate digital asset operations into existing legacy banking systems.  The RFI also requests comment on how IDIs are integrating digital asset activities into existing cybersecurity functions.
  • Supervision and activities. The RFI requests comment on whether there are unique supervisory considerations applicable to digital asset activities, whether additional supervisory guidance is necessary to address digital asset activities, and how custody of digital assets differs from the custody of traditional assets.  In addition, noting that the FDIC’s existing regulations on permissible activities for state-chartered banks may apply to digital asset activities and investments, the RFI requests comment on whether the FDIC can address uncertainty over the permissibility of certain digital asset activities by modifying its application filing procedures.
  • Deposit insurance and resolution. The RFI requests comment on whether the FDIC should take steps to ensure that customers can distinguish between insured deposits and uninsured digital asset products.  The RFI also requests that commenters compare fiat-backed stablecoins and stored value products where the underlying funds are held at IDIs.  Additionally, the RFI asks for comment on particular challenges that the FDIC may experience across the digital asset use cases in the context of a receivership or resolution process.

Finally, the RFI states that it welcomes comments on other digital asset issues, including the digital asset activities of uninsured banks and nonbanks.

The FDIC issued the RFI at a time when the federal banking agencies are increasingly focused on digital asset activities specifically and technological innovation generally.  For example:

  • FDIC. The FDIC named its first Chief Innovation Officer, Sultan Meghji, in February 2021.  The FDIC’s announcement of this appointment notes that the Innovation Officer will be tasked with “leading the FDIC’s efforts to promote the adoption of innovative technologies across the financial services sector.”
  • OCC. In July 2020 and January 2021, respectively, the Office of the Comptroller of the Currency (“OCC”) issued interpretive letters addressing national banks’ and federal savings associations’ authority (i) to provide cryptocurrency custody services for customers (see our blog post on this topic) and (ii) to hold the reserves used to back stablecoins held in hosted wallets.  In June 2020, the OCC issued an advance notice of proposed rulemaking inviting public comment on its regulations relating to national bank and federal saving association digital activities.  Moreover, in late 2020 and early 2021, the OCC granted preliminary conditional approvals for cryptocurrency firms to operate national trust companies.
  • Federal Reserve. On Wednesday, May 5, 2021, the Board of Governors of the Federal Reserve System (“Federal Reserve”) issued a notice requesting public comment on proposed guidelines articulating a series of principles to be used by Federal Reserve Banks in evaluating requests for Reserve Bank master accounts and payment services.  As described in our client alert, the proposed guidelines are intended to create a transparent and consistent framework for Federal Reserve Banks to evaluate requests for accounts and services in the face of rapid technological innovations in financial services and the emergence of novel bank charter types.
  • Interagency.  On March 31, 2021, the Federal Reserve, Consumer Financial Protection Bureau, FDIC, OCC, and National Credit Union Administration published in the Federal Register a request for information on financial institutions’ use of artificial intelligence (“AI”), including machine learning.  This request for information, which is intended to inform these agencies’ understanding of how financial institutions employ AI, seeks comment on a range of issues relating to AI, including risk management and potential benefits to financial institutions and customers.