Bowman: Regulators should be open to crypto advances

Bankers and their regulators should be open to technological advancements such as stablecoins and artificial intelligence to spark innovation, said Federal Reserve Vice Chair for Supervision Michelle Bowman. .Speaking Aug. 18 at the Wyoming Blockchain Symposium, Bowman called for regulatory tailoring in the crypto space. “It is essential that banks and regulators are open to engaging in new technologies and departing from an overly cautious mindset,” Bowman said. “Regulators must understand new products and services and recognize the utility and necessity of embracing technology in the traditional financial sector.” Bowman’s speech came a month after the passage of the GENIUS Act. The law requires stablecoin issuers to keep reserves backing their tokens and defines the status of stablecoins as being under the supervision of the Bank Secrecy Act. Bowman called the legislation passed a crucial step in establishing regulatory clarity. Bowman described two models of payments innovation. One model is through private sector advancements such as the evolution of payment cards and increased use of stablecoins. The second includes public sector infrastructure through the Fed playing a complementary role by offering clearing and settlement services. “The evolution of the payment system has long been a story of technological advancement,” Bowman said. “Much of this evolution has been led by private sector innovators, supported by the Federal Reserve’s role in ensuring safety and efficiency.”Bowman sees blockchain technology as inevitably changing the banking system, regardless of how banks and regulators respond. “We must choose whether to embrace the change and help shape a framework that will be reliable and durable — ensuring safety and soundness and incorporating the benefits of both efficiency and speed — or to stand still and allow new technology to bypass the traditional banking system altogether,” she added. Bowman called on bankers to engage with regulators to help them better understand blockchain technology, along with the value of any new product or approach and the problem it addresses. Federal Reserve staff should be able to hold small amounts of crypto or other digital assets to achieve a better understanding of its functionality and allow the Fed to attract staff who were more qualified to understand the technology, she added. The Federal Reserve is researching tokenization, smart contracts and AI to review their potential impact in improving platforms and services. Bowman had a positive view of instant payments and artificial intelligence, the latter of which she predicted would improve efficiency and accuracy in transactions. She predicted that advancements in artificial intelligence without regulatory openness to the technology will lead to banks becoming less relevant. “Those who follow developments in bank regulation have hopefully recognized some positive steps that demonstrate our commitment to embrace change,” Bowman added. “I am committed to changing our culture and attitude toward the adoption and integration of technology and new products and services.”