"End of Account Blocking Era"...Major US Regulatory Shift, Crypto Market Gets 'Breathing Room'

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As U.S. financial regulators decided to remove reputational risk from their supervisory guidance, the long-standing debanking issue in the virtual asset industry has entered a resolution phase.

According to a report by cryptocurrency media outlet Cointelegraph on April 28 (local time), the Blockchain Association welcomed the final rule issued by the FDIC and OCC prohibiting the use of reputational risk. This measure strictly prohibits regulatory agencies from forcing financial institutions to close customer accounts or penalizing them based on political, social, or religious views. The virtual asset industry expects the unfair practice of account opening being denied without clear criteria to disappear.

This policy change aligns with the Federal Reserve's completion of feedback collection on April 27 regarding its proposal to remove reputational risk from its supervisory program. The final rule jointly announced by the FDIC and OCC is scheduled to take full effect on June 9. Moving forward, regulators plan to conduct inspections during bank supervision by focusing on specific financial risks rather than the vague concept of reputational risk.

Reputational risk has been criticized for being misused as a tool for "Operation Choke Point 2.0," blocking banking services for virtual asset companies without clear financial grounds. Marta Belcher, President of the Blockchain Association, described this policy change as a significant milestone that breaks away from the unfair discrimination virtual asset companies faced, being excluded from financial services despite operating legitimate businesses. Senator Cynthia Lummis also supported the decision, pointing out that the reputational risk policy was used as a means to attack virtual asset businesses.

The virtual asset industry expects this regulatory easing to boost overall industry trust and serve as a catalyst for more traditional financial institutions to participate in related businesses. With reputational risk removed from supervisory guidance, banks will only review the actual financial risks associated with a client's business model. This is expected to significantly lower barriers for virtual asset-related companies to open and maintain accounts, fostering a stable financial environment.

Regulators expect banks to comply with laws and regulations while maintaining robust risk management systems going forward. Major virtual asset organizations, including the Blockchain Association, emphasized that training and monitoring of supervisors must be carried out in parallel to ensure consistent application of this rule in practice. Smooth communication between financial institutions and authorities is crucial at this time to ensure the effectiveness of the policy.

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