“Novel Activities Supervision Program" expands to banks engaged in banking-as-a-service, crypto & blockchain

August 16, 2023
Neepa Patel
The latest guidance coming out of the Federal Reserve regarding novel activities supervision includes additional information that applies to ALL banking organizations overseen by the Fed, including organizations with less than $10b in assets

-program will be risk-based, with intensity of supervision depending on a bank's level of engagement in novel activities
-program will be staffed by teams from around the Fed system and will engage with external experts from academia, banking & finance, and technology
-the program will inform development of supervisory approaches and guidance for banking organizations engaging in novel activities
-the Fed will periodically evaluate and update which organizations should be subject to supervision through the program; banking organizations subject to the program will be notified accordingly

Fed announces "Novel Activities Supervision Program" to oversee banks engaged in banking-as-a-service, crypto & blockchain

At Themis, we spend a lot of time reviewing and monitoring the latest news in federal banking regulations, compliance, and guidance. Staying on top of this helps us build better tools for our customers but more importantly, it enables us to help you proactively stay ahead and navigate the ever-changing landscape while ensuring compliance and risk mitigation.  

The Novel Activities Initiative introduced by the Federal Reserve on August 8th is all about adapting to our dynamic financial environment. This initiative involves the periodic assessment and updates of organizations subject to regulatory supervision and now includes: 

  • Complex, technology-driven partnerships with non-banks to provide banking services" aka banking-as-a-service
  • "Crypto-asset related activities," including custody, crypto-collateralized lending, facilitating crypto trading, and stablecoin issuing
  • Projects that use distributed ledger technology (DLT) aka blockchains
  • Banking organizations that have a high concentration of crypto and/or fintech services

Understanding the Federal Reserve's Program

The Federal Reserve has formulated a comprehensive program aimed at consistently reviewing and refreshing the roster of organizations necessitating vigilant regulatory scrutiny. This adaptive strategy acknowledges the evolving nature of financial services and underscores the importance of preemptively addressing potential vulnerabilities.

The Rational Foundation for the Program

The emergence of new market participants, including BaaS and blockchain technologies, and evolving risk factors is a constant reality. In response, the Federal Reserve adapted its novel activities supervisory methodologies. The introduction of a program that periodically assesses and updates regulatory oversight is driven by several compelling motives:

  • Mitigating Risks
  • Flexibility in Regulation
  • Efficient Resource Allocation
  • Implementation and Transparency

Compliance at Your Fingertips:
Navigating the Novel Activities Program means staying up-to-date with shifting regulations and requirements. Themis keeps you in the loop by providing real-time updates on regulatory changes that could affect your operations. 

Tailored Risk Management:
Identifying and mitigating risks is the cornerstone of the Novel Activities Program. With Themis, you can create customized risk assessment models that align with the changing financial landscape. Whether it's tracking emerging risks or evaluating potential impacts, Themis has you covered.

Adaptive Strategy Formulation:
Just as the Federal Reserve's program adapts to market changes, Themis helps you create adaptive strategies. Our analytics and data-driven insights empower you to make informed decisions that align with the evolving financial landscape.

Efficient Resource Allocation:
Optimizing resources is crucial to the success of the Novel Activities Program. Themis assists you in prioritizing your efforts by identifying areas of high potential risk. This ensures your resources are used strategically, just like the Federal Reserve's focus on high-impact institutions.

Transparency and Collaboration:
Just like the Federal Reserve emphasizes transparency, Themis fosters communication and collaboration within your organization. With our user-friendly interface, you can keep everyone on the same page regarding regulatory changes, risk assessments, and strategies.

Continuous Monitoring:
The Novel Activities Program demands continuous oversight. Themis provides automated monitoring that alerts you to potential deviations from your strategies or regulatory requirements. This proactive approach helps you nip issues in the bud.

Change can be daunting, especially when it comes to compliance and risk management. That's where Themis, your compliance safety net, steps in. Themis is built to prepare financial institutions and fintechs to prepare not only for audits and continual regulatory updates, but help organizations prioritize risk mitigation, adaptability, and resource optimization.

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