In a significant regulatory shift, the United States Federal Reserve is reportedly preparing to dismantle its dedicated program for overseeing banks’ involvement in cryptocurrency and financial technology activities. The decision marks a potential turning point in how the central bank approaches innovation in the financial sector, particularly as digital assets and decentralized technologies continue to evolve rapidly.
The initiative in question, known as the Novel Activities Supervision Program, was launched in 2023. It was specifically created to enhance the Federal Reserve’s oversight of traditional banking institutions that were beginning to engage with emerging technologies. These included activities such as offering crypto custody services, facilitating stablecoin transactions, investing in blockchain infrastructure, and forming partnerships with financial technology startups.
At the time of its creation, the program was intended to provide a structured supervisory framework for what the Fed described as “novel, complex, and potentially high risk” activities. The goal was to ensure that innovation did not come at the expense of financial stability or consumer protection.
However, since its launch, the program has faced growing criticism from both the banking industry and the broader digital asset community. Financial institutions argued that the framework lacked transparency and created an environment of regulatory uncertainty. Many executives said the oversight was burdensome and unpredictable, making it difficult to plan for new product development or to partner with fintech firms in a meaningful way.
“The program quickly became a barrier to innovation rather than a guide,” said a senior executive at a major United States bank who spoke on condition of anonymity. “It created more confusion than clarity for institutions trying to navigate the space responsibly. The lack of consistent guidance forced many banks to either pause or completely abandon potentially transformative projects.”
Industry lobbyists and some members of Congress also voiced concern that the program was acting as a form of “shadow regulation” — exerting influence without clear rulemaking or accountability. They argued that the framework discouraged financial institutions from exploring new technologies at a time when global competitors, especially in Europe and Asia, were aggressively modernizing their banking systems.
According to sources close to the Federal Reserve, the central bank has taken these criticisms seriously and has decided to phase out the program entirely by the end of the third quarter of 2025. While no official public statement has been released as of yet, internal discussions and strategic planning are already underway to sunset the initiative.
Policy analysts interpret the move as part of a broader rethinking within the Federal Reserve about how to regulate financial innovation. Rather than isolating cryptocurrency and fintech activities as uniquely risky or disruptive, there is now a growing sentiment that these technologies should be integrated into existing regulatory frameworks in a more balanced and proportionate manner.
“This is a clear signal that the Fed is reconsidering how it approaches emerging technologies — possibly moving toward a more collaborative and integrated oversight model,” said Melissa Grant, a fintech policy analyst at the Brookings Institution. “While the need for supervision remains, the structure of that supervision must evolve alongside the industry.”
The decision also comes amid broader shifts in regulatory thinking across federal agencies. The Securities and Exchange Commission has recently faced court losses challenging its authority over certain digital assets, and the Office of the Comptroller of the Currency is reviewing its guidelines on bank-fintech partnerships. Together, these developments suggest that the United States may be entering a new phase of regulatory recalibration regarding digital finance.
Reactions from within the crypto and fintech sectors have been largely positive. Advocates argue that winding down the program could encourage banks to resume investments and collaborations with blockchain and fintech firms. Others, however, caution that the dissolution of the oversight unit must be matched with clearer, more consistent regulatory pathways in order to prevent confusion and risk fragmentation across federal agencies.
“This is a welcome move, but it cannot be the end of the conversation,” said Carla Mensah, legal counsel at a leading crypto infrastructure firm. “We still need a framework that provides clarity, predictability, and support for innovation — without sacrificing consumer safety or the integrity of the financial system.”
It remains unclear what structure, if any, will replace the Novel Activities Supervision Program. Some insiders suggest the Federal Reserve may issue updated guidance for banks engaging with digital assets, while others believe the central bank will rely more heavily on cooperation with other regulators to establish cross-agency standards.
What is certain is that this development will have ripple effects across the financial industry. As banks and technology firms alike assess the regulatory landscape, the dissolution of this program is likely to embolden institutions that had previously been hesitant to enter the digital asset space.
With innovation in financial services accelerating globally, the Federal Reserve’s move to step back from this focused oversight role could mark the beginning of a more open, flexible, and technology-neutral approach to regulation in the digital era.
source: reuters.com