The Federal Reserve (Fed) announced it will shut down its program with additional scrutiny over crypto and fintech activities.

On an August 15 statement, the central bank said it will sunset the Novel Activities Supervision Program and return to monitoring banks’ crypto and fintech activities through standard supervisory processes.

The Fed established the specialized program in August 2023 to enhance oversight of banking organizations engaging in crypto activities, distributed ledger technology projects, and complex technology partnerships with non-banks. 

The program targeted activities that regulators deemed novel and potentially risky to financial stability.

The Fed stated:

“Since the Board started its program to supervise certain crypto and fintech activities in banks, the Board has strengthened its understanding of those activities, related risks, and bank risk management practices.”

The regulator will integrate knowledge gained from the program into standard supervisory processes while rescinding the 2023 supervisory letter that created the initiative.

The program’s dissolution follows several pro-cryptocurrency moves by federal regulators this year. 

The Federal Reserve Board removed reputational risk from its bank supervision program on June 23, ordering staff to strike the term from examination manuals and concentrate on measurable financial exposures.

The Fed’s move positions the central bank alongside the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, which made similar changes this year. 

The coordinated revisions eliminate a subjective standard that experts said allowed examiners to block banking services to crypto firms and prevented banks from offering basic crypto-related services.

Furthermore, the Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corporation released a joint statement explaining how existing banking rules apply when institutions custody crypto for customers. 

The guidance describes safekeeping as holding digital assets on clients’ behalf while stressing that it does not create new supervisory demands.

Regulators instructed boards and executives to view crypto custody as a service that relies on exclusive control of private keys and other sensitive data, requiring banks to prove no other party can unilaterally move assets once they enter custody.

Fed Chair Jerome Powell laid the groundwork for the regulatory shift in an April 16 speech. In it, he urged Congress to establish a stablecoin framework and stated that the Fed does not intend to limit lawful relationships between banks and crypto firms. 

Powell acknowledged that regulators adopted a conservative stance after the 2022 market failures but indicated that some guidance may be relaxed to accommodate responsible innovation.

The program’s end represents a broader normalization of crypto banking supervision as regulators gain confidence in their understanding of digital asset risks and develop clearer frameworks for institutional participation in crypto markets.

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As crypto prices see a new rebound with Bitcoin (BTC) leading the pack, US investors are not only anticipating significant returns on BTC and other digital assets but also facing increased scrutiny from the Internal Revenue Service (IRS). 

Recent reports indicate that the Internal Revenue Service has dispatched a wave of warning letters to crypto investors, raising alarms about the accuracy of the information they provided on their tax returns.

Crypto Tax Inquiries Skyrocket

In the past two months, the number of these warning letters has spiked, signaling a renewed focus on digital asset reporting. Crypto tax experts have noted that this uptick is markedly higher than in previous years. 

David Kemmerer, co-founder and CEO of CoinLedger, reported a dramatic increase in support inquiries related to IRS communications. From May to June, conversations on CoinLedger about “IRS letters” surged to nearly 800, a ninefold increase compared to the same timeframe in 2024.

Kemmerer explained, “Thousands of investors are getting these letters. Naturally, when that happens, we see a flood of customers coming to us asking, ‘What do I do?’” 

This sentiment is echoed by two crypto tax attorneys, Jordan Bass and Andrew Gordon, who have also observed a noticeable rise in inquiries regarding these IRS notifications. 

Bass mentioned that his firm received inquiries from at least ten recipients of the letters in the last two months, a significant increase from the previous year when no inquiries were reported.

IRS Warning Letters

The IRS has a history of intensifying its efforts to ensure compliance among cryptocurrency investors. Following the agency’s acquisition of thousands of customer records from Coinbase in 2017, it implemented a series of “voluntary compliance” letters aimed at encouraging accurate reporting among investors. 

The latest notices inform recipients that the Internal Revenue Service possesses information indicating they hold “one or more accounts containing virtual currency.” 

While some letters advise recipients to review their reporting for accuracy, others require a response, either through amended returns or explanations justifying their reported transactions.

Interestingly, Gordon noted a potential commonality among recent recipients of the letters, many of whom had accounts on the Seychelles-based crypto exchange Poloniex, raising questions about the data the IRS may have accessed to trigger these communications.

Kemmerer speculated that the increased outreach from the IRS typically follows the agency acquiring new data, suggesting that the notices might be part of broader enforcement efforts. “I’m sure there are just people randomly getting selected, and the lucky ones get these scary letters,” he said.

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