US Financial Regulators Chart New Path Forward For The Crypto Industry

Key Takeaways

In recent weeks, U.S. financial regulators, including the Board of Governors of the Federal Reserve System (Federal Reserve), the Office of the Comptroller of the Currency (OCC), the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), have withdrawn guidance or issued statements that collectively signal a new regulatory approach to crypto regulation and progress toward a clearer and more comprehensive regulatory framework for the crypto industry.
Financial regulator crypto activity is consistent with President Donald J. Trump's Executive Order 14178 issued in January 2025 to "support the responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy."¹
At the May 12 meeting of the SEC's Crypto Task Force, Chairman Paul S. Atkins laid out his vision to modernize the securities laws to include digital assets.
Additional crypto regulatory actions, including guidance and rule proposals, particularly from the SEC, are likely later this year.

Federal Reserve Withdraws Prior Crypto Guidance

On April 24, the Federal Reserve withdrew its prior guidance for banks related to their crypto-asset and dollar token activities and also announced related changes to its expectations for these activities.² In addition, the Federal Reserve, together with the Federal Deposit Insurance Corporation (FDIC) and the OCC, withdrew from two 2023 statements³ jointly issued by the prudential regulators regarding banks' crypto-asset activities and exposures.

The Federal Reserve has rescinded its:

2022 supervisory letter⁴ that established an expectation that state member banks provide advance notification of planned or current crypto-asset activities. As a result of this withdrawal, the Federal Reserve will no longer expect banks to provide such notifications and will instead monitor banks' crypto-asset activities through the normal supervisory process.

2023 supervisory letter⁵ regarding the supervisory nonobjection process for state member bank engagement in dollar token activities.

The Federal Reserve took these actions to ensure that its expectations remain aligned with evolving risks that surround crypto-assets and to further support technological innovation in the banking system. In addition, the Federal Reserve indicated that it intends to work with the federal banking regulatory agencies to consider whether additional guidance to support technological innovation, including innovation related to crypto-assets, is appropriate.

OCC Crypto Custody Guidance

On May 7, the OCC issued its Interpretive Letter 1184, confirming that national banks and federal savings associations can provide crypto custody and execution services under existing law.⁶

The OCC confirmed that banks can buy and sell assets held in custody at the custody customer's direction and are permitted to outsource crypto-asset activities to third parties, including custody and execution services, subject to appropriate third-party risk management practices. The OCC's guidance reverses the cautious January 2023 interagency stance previously taken by the OCC, the Federal Reserve and the FDIC.⁷ The OCC's new guidance signals support for responsible digital asset activity in the banking system and builds on prior OCC guidance (specifically, OCC Interpretive Letters 1170⁸ and 1183⁹), signaling a major step forward for institutional crypto adoption.

Under the OCC's new guidance, banks may:

Custody crypto-assets on behalf of their customers
Execute trades of crypto-assets at their customers' direction
Settle, value and record crypto transactions
Provide crypto-related tax and operational support
Use third-party digital asset service providers (sub-custody allowed)

In addition, the OCC's new guidance states that strong risk management controls must be in place, with any bank fiduciary services remaining subject to 12 C.F.R. Parts 9 and 150, as applicable.

SEC and FINRA Withdrawal of Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities

On May 15, the staffs of the SEC's Division of Trading and Markets and the Office of General Counsel of FINRA withdrew a joint staff statement issued on July 8, 2019, regarding broker-dealer custody of digital asset securities (Joint Staff Statement).¹⁰ The now-withdrawn Joint Staff Statement required broker-dealers that custodied digital asset securities to comply with the Exchange Act's broker-dealer financial responsibility rules, including but not limited to the net capital rule, customer protection rule, and broker-dealer recordkeeping and reporting rules.¹¹ The applicability of these rules created uncertainty among market participants, particularly in light of the uncertainty that has surrounded the circumstances in which digital assets could be deemed to be securities. The withdrawal of these rules provides the SEC and FINRA with an opportunity to revisit and reformulate the rules that govern broker-dealer custody of digital assets.

SEC Potential Conditional Exemptive Order for Tokenized Securities

On May 8, SEC Commissioner Hester M. Peirce provided remarks at the SEC's 31st International Institute for Securities Market Growth and Development regarding the SEC Crypto Task Force's consideration of a potential conditional exemptive order that would allow firms to issue, trade and settle eligible tokenized securities using distributed ledger technology (DLT).¹² Commissioner Peirce's remarks were delivered a few days ahead of the Crypto Task Force's fourth public roundtable – "Tokenization: Moving Assets Onchain: Where TradFi and DeFi Meet" – which occurred on May 12.¹³

If such an order is implemented, market makers and other firms seeking to issue, trade and settle tokenized securities using DLT would be exempt from certain SEC registration requirements and rules but would still be required to comply with other SEC regulatory requirements, as specified below.

Conditional Exemption

The Crypto Task Force's consideration of a potential conditional exemptive order follows comments that it received in response to its February 21 call for public comment,¹⁴ which was issued in connection with the launch of the Crypto Task Force on January 21.¹⁵ The potential conditional exemption would enable firms to issue, trade and settle tokenized securities utilizing DLT without needing to comply with certain SEC registration requirements and rules, including the SEC's Regulation National Market System as well as other broker-dealer, clearing agency and/or exchange registration requirements. The potential exemption would incentivize market makers and other market participants that would otherwise be reluctant to trade and settle tokenized securities because of regulatory uncertainty and would also provide the SEC with an opportunity to reform existing rules to accommodate DLT-based trading and settlement of tokenized securities.

The Crypto Task Force's contemplated conditional exemption would require exempted entities to:

Comply with market integrity conditions for the prevention of fraud and manipulation
Provide material disclosures to users about a platform's products, services, operations, conflicts of interest and risks, including smart contract risks
Comply with SEC recordkeeping and reporting requirements
Be subject to monitoring and examination by SEC staff
Have adequate financial resources for operations

The Crypto Task Force is also contemplating supplemental requirements for market participants that offer crypto custody services, including mandatory disclosures related to crypto custody arrangements and risks and the implementation of policies and procedures related to blockchain and wallet security. Additional requirements under consideration include limits on the number and types of tokenized securities that can be listed as well as limits on trading volume.

Commissioner Peirce notes that the potential exemption being contemplated is a "work-in-progress" and that the objective is to formulate a commercially feasible approach that protects investors by ensuring that they have access to the benefits of DLT for trading, clearing and settling securities.¹⁶

SEC Chairman Atkins' Regulatory Agenda for Crypto-Assets

On May 12, SEC Chairman Paul S. Atkins delivered a keynote speech at the Crypto Task Force's roundtable on tokenization, in which he outlined his regulatory reform priorities as SEC Chairman and identified crypto issuance, custody and trading as three focus areas for the SEC's crypto-asset regulatory reform agenda.¹⁷ Chairman Atkins stated that he is eager to work with the Trump Administration and Congress to fulfill President Trump's vision of making the U.S. the "crypto capital of the planet."¹⁸

Chairman Atkins' Regulatory Priorities

Recognizing the evolution of blockchain innovation in the capital markets, Chairman Atkins stated that a key priority of his chairmanship will be to develop a "rational regulatory framework for crypto asset markets that establishes clear rules of the road"¹⁹ while continuing to protect investors against fraud and manipulation. Chairman Atkins stated that the SEC's policymaking approach to crypto will no longer be based on ad hoc regulation by enforcement but will instead be based on the SEC's existing rulemaking, interpretive and exemptive authorities. Atkins highlighted the issuance, custody and trading of digital assets as three core items for SEC action.

Issuance: With respect to issuance, Chairman Atkins stated that he intends for the SEC to establish clear guidelines for distributions of crypto-assets in order to resolve the uncertainty that prospective issuers currently face with respect to whether or not a crypto-asset constitutes a security or is subject to an investment contract and in order to create pathways for crypto-asset issuances within the U.S. He also referred to recent SEC staff statements related to offerings and registrations of securities in the crypto-asset markets,²⁰ memecoins,²¹ certain proof-of-work mining activities²² and stablecoins;²³ however, he explained that these statements are "extremely temporary" and indicated that action at the Commission level is needed.²⁴

Custody: With respect to custody, Chairman Atkins stated that he supports providing registrants with a wider range of options to determine how to custody crypto-assets and signaled his support for the SEC's recent removal of Staff Accounting Bulletin No. 121,²⁵ which created impediments to the provision of crypto-asset custodial services. Chairman Atkins stated that the SEC would provide clarity with respect to the types of custodians that will qualify as a "qualified custodian" under the Investment Advisers Act of 1940 and Investment Company Act of 1940. He also stated that Commission action may be needed to clarify the application of customer protection and net capital rules to broker-dealers that act as custodians for non-security crypto-assets or crypto-asset securities.

Trading: With respect to trading, Chairman Atkins stated that he is in favor of allowing registrants to trade crypto-assets on their platforms and has instructed SEC staff to modernize the alternative trading system regulatory regime in order to better accommodate crypto-assets, including via "pairs trading" between securities and non-securities.

SEC Commissioners Hester M. Peirce,²⁶ Caroline A. Crenshaw²⁷ and Mark T. Uyeda²⁸ also delivered remarks at the Crypto Task Force's roundtable on tokenization.

Conclusion

The Federal Reserve and OCC guidance, the SEC Division of Trading and Markets and FINRA's joint withdrawal of broker-dealer digital asset custody guidance, the Crypto Task Force's consideration of potential regulatory changes, and the SEC's regulatory agenda for crypto-assets under Chairman Atkins' leadership collectively signal a positive, innovation-supportive path ahead for the U.S. crypto industry. As the U.S. crypto regulatory landscape continues to evolve, BakerHostetler's Digital and Innovative Markets team is ready and able to assist market participants with their regulatory, public policy, litigation and transactional needs.

The BakerHostetler Digital and Innovative Markets team is the first of its kind, designed to seamlessly integrate traditional financial markets and the rapidly evolving digital markets. Our multidisciplinary team of experienced attorneys offers seamless counsel to clients navigating the intersection of these two worlds. As our clients become increasingly engaged in both, we are uniquely positioned to provide cohesive, forward-thinking legal and strategic advice on crypto, capital, and commodities and derivatives markets.

Footnotes

1 Executive Order 14178, § 1, Jan. 23, 2025.

2 Federal Reserve, "Federal Reserve Board announces the withdrawal of guidance for banks related to their crypto-asset and dollar token activities and related changes to its expectations for these activities," April 24, 2025. https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250424a.htm

3 Federal Reserve, FDIC and OCC, Joint Statement on Crypto-Asset Risks to Banking Organizations, Jan. 3, 2023 (withdrawn). https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a1.pdf.

Federal Reserve, FDIC and OCC, Joint Statement on Liquidity Risks to Banking Organizations Resulting from Crypto-Asset Market Vulnerabilities, Feb. 23, 2023 (withdrawn). https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a2.pdf

4 Federal Reserve, SR 22-6 / CA 22-6: Engagement in Crypto-Asset-Related Activities by Federal Reserve-Supervised Banking Organizations, Aug. 16, 2022 (withdrawn). https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a3.pdf

5 Federal Reserve, SR 23-8 / CA 23-5: Supervisory Nonobjection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens, Aug. 8, 2023 (withdrawn). https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a4.pdf

6 OCC, Interpretive Letter #1184: Clarification of Bank Authority Regarding Crypto-Asset Custody Services, May 7, 2025. https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2025/int1184.pdf

7 Federal Reserve, FDIC and OCC, Joint Statement on Crypto-Asset Risks to Banking Organizations, Jan. 3, 2023. https://www.occ.gov/news-issuances/news-releases/2023/nr-ia-2023-1a.pdf

8 OCC, Interpretive Letter #1170: Authority of a National Bank to Provide Cryptocurrency Custody Services for Customers, July 22, 2020. https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2020/int1170.pdf

9 OCC, Interpretive Letter #1183: OCC Letter Addressing Certain Crypto-Asset Activities, March 7, 2025. https://occ.gov/topics/charters-and-licensing/interpretations-and-actions/2025/int1183.pdf

10 SEC Division of Trading and Markets and FINRA Office of General Counsel, Withdrawal of Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities, May 15, 2025. https://www.sec.gov/newsroom/speeches-statements/withdrawal-joint-staff-statement-broker-dealer-custody-digital-asset-securities. See also SEC Division of Trading and Markets and FINRA Office of General Counsel, Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities, July 8, 2019 (withdrawn May 15, 2025). https://www.sec.gov/newsroom/speeches-statements/joint-staff-statement-broker-dealer-custody-digital-asset-securities

11 Id.

12 Speech of SEC Commissioner Hester M. Peirce, "A Creative and Cooperative Balancing Act," May 8, 2025. https://www.sec.gov/newsroom/speeches-statements/peirce-iismgd-050825

13 SEC, "Crypto Task Force Roundtable – Tokenization: Moving Assets Onchain: Where TradFi and DeFi Meet," May 12, 2025. https://www.sec.gov/newsroom/meetings-events/tokenization-moving-assets-onchain-where-tradfi-defi-meet

14 Statement of SEC Commissioner Hester M. Peirce, "There Must Be Some Way Out of Here," Feb. 21, 2025. https://www.sec.gov/newsroom/speeches-statements/peirce-statement-rfi-022125

15 SEC Press Release, SEC Crypto 2.0: Acting Chairman Uyeda Announces Formation of New Crypto Task Force, Jan. 21, 2025. https://www.sec.gov/newsroom/press-releases/2025-30

16 Speech of SEC Commissioner Hester M. Peirce, "A Creative and Cooperative Balancing Act," May 8, 2025.

17 Speech of SEC Chairman Paul S. Atkins, "Keynote Address at the Crypto Task Force Roundtable on Tokenization," May 12, 2025. https://www.sec.gov/newsroom/speeches-statements/atkins-remarks-crypto-roundtable-tokenization-051225

18 Kimberlee Kruesi, "Trump calls for US to be 'crypto capital of the planet' in appeal to Nashville bitcoin conference," Associated Press, July 27, 2024. https://apnews.com/article/donald-trump-bitcoin-cryptocurrency-stockpile-6f1314f5e99bbf47cc3ee6fc6178588d

19 Speech of SEC Chairman Paul S. Atkins, "Keynote Address at the Crypto Task Force Roundtable on Tokenization," May 12, 2025.

20 SEC Division of Corporation Finance, Offerings and Registrations of Securities in the Crypto Asset Markets, April 10, 2025. https://www.sec.gov/newsroom/speeches-statements/cf-crypto-securities-041025

21 SEC Division of Corporation Finance, Staff Statement on Meme Coins, Feb. 27, 2025. https://www.sec.gov/newsroom/speeches-statements/staff-statement-meme-coins

22 SEC Division of Corporation Finance, Statement on Certain Proof-of-Work Mining Activities, March 20, 2025. https://www.sec.gov/newsroom/speeches-statements/statement-certain-proof-work-mining-activities-032025

23 SEC Division of Corporation Finance, Statement on Stablecoins, April 4, 2025. https://www.sec.gov/newsroom/speeches-statements/statement-stablecoins-040425

24 Speech of SEC Chairman Paul S. Atkins, "Keynote Address at the Crypto Task Force Roundtable on Tokenization," May 12, 2025.

25 SEC Staff Accounting Bulletin No. 122, Release No. SAB 122, Jan. 23, 2025. https://www.sec.gov/rules-regulations/staff-guidance/staff-accounting-bulletins/staff-accounting-bulletin-122

26 Speech of SEC Commissioner Hester M. Peirce, "Getting Smart – Tokenization and the Creation of Networks for Smart Assets: Opening Remarks for Tokenization Roundtable," May 12, 2025. https://www.sec.gov/newsroom/speeches-statements/peirce-remarks-crypto-roundtable-tokenization-051225

27 Speech of SEC Commissioner Caroline A. Crenshaw, "Tokenization: Our Field of Dreams? Remarks at the Crypto Task Force Roundtable on Tokenization," May 12, 2025. https://www.sec.gov/newsroom/speeches-statements/crenshaw-remarks-crypto-roundtable-tokenization-051225

28 Speech of SEC Commissioner Mark T. Uyeda, "Tokenization of Real-World Assets," May 12, 2025. https://www.sec.gov/newsroom/speeches-statements/uyeda-remarks-crypto-roundtable-tokenization-051225

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