On the home front, the US Office of the Comptroller of the Currency (OCC) has just removed significant barriers to bank engagement with crypto. If upheld, this decision will be a sea change in balancing traditional finance with the emerging world of digital assets. This action has been prompting banks to dip their toes in the crypto waters. Other regulatory changes have served to further incentivize them to stretch the bounds of their operations. FakeBollinger.com is back to explain what this all means and why it’s happening. We’ll further unpack the implications for banks and the crypto community alike. Zero fluff – just the signal.

The OCC issued anti-competitive interpretive letters under the Trump administration in July 2020. These letters made clear that federally chartered thrifts and banks are allowed to provide custody services for crypto assets, enable exchanges between crypto and fiat currencies, settle transactions and execute trades. This created a green light for banks to test the waters with crypto. While the Biden administration initially pumped the brakes on this activity, a recent shift in stance indicates regulators are becoming more supportive of digital assets. This isn’t a prescription for anarchy. Rather, it is an indication of a more realistic path forward for including crypto in the existing financial system.

Then in April 2025, the FDIC issued a substantially revised Financial Institution Letter (FIL-16-2025). This letter reinforces the long-standing position that FDIC-supervised institutions do not need to notify the agency of such activities, provided they are conducted in a safe and sound manner. This is a big deal, cutting the red tape for banks that want to engage in crypto-related capabilities. The FDIC’s revised, thorough FIL rightly focuses on underscoring the necessity of remaining engaged with supervisory teams. It underscores the importance of sharing the retraining to the agency’s Supervision Manual. Put another way, banks shouldn’t get to set the rules and then not inform regulators of their activities.

Over the next five years, legacy banks will deepen their ties with digital assets. From prudent pilot to bold expansion. With this next phase, they’ll go from careful testing to leading on broad adoption. It will be customer demand that ultimately increases the pressure to make this transition. There’s the lure of new revenue streams, combined with a new-found realization that crypto is not a fad. For banks to thrive in this rapidly changing arena, they’ll need to overcome various risks and compliance complexities.

Understanding the Risks in Crypto

Despite an increasingly welcoming regulatory environment, banks need to be hypersensitive to the potential pitfalls of crypto. Don’t sleep on these risks. If we do not engage with them correctly, the potential for lost revenue, brand damage and regulatory fines exists.

The Challenges of Managing Risk

Banks face a multitude of challenges when managing risk in the crypto space, which include:

  • Market Volatility and Liquidity Risk: Crypto markets are notoriously volatile, and prices can fluctuate dramatically in short periods. Banks need to have robust risk management systems in place to handle these fluctuations and ensure they have sufficient liquidity to meet customer demands.
  • Cybersecurity Vulnerabilities: Crypto assets are a prime target for hackers, and banks need to invest heavily in cybersecurity to protect their systems and customer funds. This includes implementing multi-factor authentication, using cold storage for crypto assets, and conducting regular security audits.
  • Anti-Money Laundering (AML) Obligations: Crypto can be used for illicit activities, such as money laundering and terrorist financing. Banks must have robust AML programs in place to detect and prevent these activities, including enhanced due diligence on customers and transactions.
  • Consumer Protection Requirements: Banks need to ensure that customers understand the risks associated with crypto and that they are not being misled or exploited. This includes providing clear and accurate information about crypto products and services, and protecting customers from fraud and scams.
  • Employee Conflicts of Interest: Banks need to manage the risk of employees using their positions to profit from crypto trading or other activities. This includes monitoring employee crypto trading, implementing pre-clearance processes for personal investments, and providing training on ethical conduct.

The Impact of Regulatory Changes

These latest changes to bank regulations are important because they heavily influence how banks will feel about diving into the crypto ecosystem. Together, the OCC’s recent interpretive letters and the FDIC’s updated FIL provide a clearer roadmap for banks to work with. With the issuance of these guidelines comes increased scrutiny and heightened expectations.

Key compliance considerations include monitoring employee crypto trading for conflicts of interest, managing pre-clearance processes for personal investments, ensuring transparency in crypto-related lending and advising, and upholding robust AML/KYC programs amid evolving risks. Institutions need to put forward strong compliance efforts designed specifically for digital assets to ensure they are remaining ahead of changing regulations. Banks still need to contend with risks like any counterpart risk, as well as sanctions evasion and money laundering.

Can Regulation Drive Innovation in the Crypto Space?

The million-dollar question is whether regulation can truly open doors to further innovation and development in the crypto space. Skeptics of regulation often claim that it is a creativity and innovation killer. On the other side, proponents assert that it lays the building blocks for balanced economic development and certainty.

The Role of Regulation in Shaping the Industry

We talked about how regulation has been fundamentally important to the future of the crypto industry. This gives necessary clarity and certainty to businesses and consumers alike. This may increase the flow of institutional investment, promote wider adoption, and ultimately drive greater innovation. Inadequate consumer protections run the risk of allowing fraud and scams onto the platform. It establishes confidence in the public domain and invites greater participation.

Regulation can have unintended consequences. Innovation can be hindered by regulations that are overly strict or otherwise poorly designed. They push businesses offshore and make it harder for new challengers to enter the market. Regulators need to find the right balance between protecting consumers and allowing room for innovation.

Balancing Compliance and Creativity

Both banks and crypto firms will need to figure out how to meet at the intersection of compliance and creativity. That can run the gamut from pushing the boundaries of innovation to staying strictly within regulatory guidelines. To do so, work hand-in-hand with regulators. As partners, you’ll be able to develop innovative products and services that meet their needs. A second is to invest in compliance technology and expertise so they can be sure they’re doing right by the public and meeting all of their obligations.

For crypto firms looking to chase – and receive – banking charters, there are significant lessons to be taken from Anchorage Digital’s journey thus far. Anchorage Digital was one of the initial crypto-related enterprises to receive a national bank charter from the OCC. Their story highlights the importance of creating an effective compliance program. They involve regulators early and often, using that communication to demonstrate their commitment to safety and soundness.

ZAWYA NEWSLETTERS

As we move towards increased regulation, staying up to date with the changing regulatory landscape is essential for all players in the crypto space. Regulations are ever evolving and the pace of change can make it challenging to stay on top of the latest developments.

Importance of Staying Informed

The overall crypto regulatory environment is very dynamic, with rapid updates and shifts across various jurisdictions. Staying informed helps in several ways:

  • Compliance: Understanding the latest regulations ensures that banks and crypto firms can operate within the law and avoid penalties.
  • Strategic Planning: Knowledge of upcoming regulatory changes allows businesses to plan ahead and adapt their strategies accordingly.
  • Risk Management: Awareness of regulatory risks helps in developing effective risk management frameworks.
  • Competitive Advantage: Staying ahead of the curve on regulatory matters can provide a competitive edge in the market.

How Newsletters Can Enhance Knowledge on Crypto Regulations

Newsletters are one of the best ways to keep up-to-date on developing crypto regulations. They provide a curated source of information, saving time and effort in tracking down updates from various sources.

Continue to educate yourself and fight regulatory overreach at every turn! In so doing, banks and crypto firms can truly unlock the power of digital assets while mitigating risks. To make progress, we need a cooperative partnership. Regulators and industry players must work together to create a safe, sound, and innovative crypto environment.

  • Timely Updates: Newsletters deliver the latest regulatory news directly to your inbox.
  • Expert Analysis: Many newsletters include analysis from legal and industry experts, providing valuable insights into the implications of regulatory changes.
  • Comprehensive Coverage: Good newsletters cover a wide range of regulatory topics, including AML, KYC, consumer protection, and cybersecurity.
  • Convenience: Newsletters consolidate information from multiple sources into a single, easy-to-read format.

By staying informed and proactively addressing regulatory challenges, banks and crypto firms can unlock the full potential of digital assets while mitigating the associated risks. The path forward requires a collaborative approach, with regulators and industry participants working together to create a safe, sound, and innovative crypto ecosystem.