Fed warns banks over doing business with PayPal new stablecoin

The US financial regulators’ attack on all things crypto continues as the Federal Reserve issues a new announcement obliging banks to jump through extremely exacting requirements in order to do business with crypto entities.

Referring to its recently established “novel activities supervision program”, the Federal Reserve’s latest supervisory letter states that any  banks wishing to do business in “dollar tokens” must obtain a written supervisory non-objection from the Fed before doing anything in line with this sort of activity.

This latest regulatory pronouncement might well have been inspired after seeing PayPal roll out its PYUSD stablecoin which seeks to become a bridge between fiat and Web3 for merchants and consumers alike. 

This particular innovation for the dollar and crypto may have been seen as a step too far by US financial authorities, given the size of PayPal and its huge financial clout and influence.

The new strictures put in place by the Fed will make doing business in PayPal’s stablecoin extremely challenging and demanding, requiring any bank to “identify, measure, monitor and control the risks of its activities,”.

The Fed will then weigh up the risks for money laundering, substantial short term redemptions, and cybersecurity risks among others.

Obliging all companies wanting to do such business to follow such an exacting and arduous process is likely to put a real damper on the use of PayPal’s PYUSD stablecoin and has led to some volatility in PayPal’s stock price.

It’s not just the Fed that is acting in such a manner either. The FDIC and the OCC, both very weighty financial agencies, have also put rules into place that crypto companies, and the businesses looking to interact with them, are likely to find burdensome and difficult to comply with.

Opinion

The financial agencies should act to give adequate protections to businesses and consumers from the issues that can arise from such groundbreaking financial innovations in the crypto sector, but instead they are acting as kingmakers in order to favour the banking industry from which they come.

Crypto came into being as a creative and innovative industry that favours speed, security and privacy, and puts the consumer first. However, cumbersome and pro-bank regulations are pulling crypto companies down to the same level as their lumbering banking competitors.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.