Evolution or Chaos? What the Fed’s Crypto Shift Means for Banks and FinTechs
- Steve Marshall
- Oct 1
- 2 min read
Updated: Oct 2
The US regulatory approach to crypto took two dramatic turns in August. First, the Federal Reserve announced it would scrap its dedicated program for policing banks’ crypto and fintech activities. Then, just days later, the Fed issued a Request for Comment on innovative methods to detect illicit activity in digital assets, signaling a pivot toward principle-based expectations for KYC and DeFi.
Together, these moves indicate that change is afoot. And with change comes uncertainty, as innovation advances on one side and regulatory ambiguity grows on the other. For financial institutions, the question is whether this shift represents freedom or fragility.
Why deregulation may not bring clarity
Rolling back oversight does not automatically make compliance easier. We are clearly in a time of transition. Shifts in oversight can introduce confusion as firms adapt their compliance strategies. As a result, firms must determine how to rationalize their controls to regulators, shareholders, and the public—ultimately raising the fundamental question: who defines “good enough” compliance, and by what standards?
The risk paradox
Periods of uncertainty often create an opening for bad actors. Criminals thrive in times of market and regulatory change, exploiting gaps between old frameworks and emerging rules. At the same time, legitimate businesses face barriers to working with regulated financial partners. Banks, for example, will need to weigh third-party risk management, custody obligations, and reputational exposure more heavily as they navigate this shifting landscape.
The paradox is clear: reducing supervision may appear to ease pressure, but it can increase complexity in practice.
Global divergence
The UK and Europe may be slightly ahead of the US in shaping frameworks for digital assets, stablecoins, and FinTech activity. In the US, the recently passed GENIUS Act is the latest step, and much remains to be seen in terms of regulations that may follow. For global institutions, this means compliance strategies must scale across borders and flex to meet differing expectations, not unlike the ones large multinational banks have implemented in the past when adapting to regional variations in anti-money laundering (AML) and data privacy laws.
Operating seamlessly across borders will be essential, particularly as open banking frameworks and cross-border payment innovations evolve.
Lessons from history
History shows that ignoring or downplaying compliance risk rarely ends well. Enforcement actions against BitMEX ($100M fine in 2020), Ripple (ongoing SEC case since 2020), and Binance ($4.3B settlement, 2023–24) illustrate the dangers of operating in regulatory gray areas or disregarding regulations altogether. These cases demonstrate how compliance and reputational failures can lead to massive financial and credibility losses.
The lesson is clear: operating in a “wild west” mindset may seem tempting in a developing and potentially divergent regulatory environment, but the long-term costs can be devastating.
A test for the future
With crypto, stablecoins, and open banking converging, the stakes for financial services have never been higher. For the industry, this moment underscores that effective risk management is more important than ever, as institutions navigate rules that may be increasingly principle-based, opaque, and fragmented.
For forward-thinking firms, the path forward will require balancing innovation with vigilance. That means adopting technologies and frameworks that allow compliance programs to scale across shifting regulatory landscapes while protecting against financial crime.
In other words, recent changes bring about different oversight methods. The institutions that succeed will be those that prepare for both sides of the paradox.
