The Federal Reserve has formally adopted new and strict rules prohibiting its officials from trading in a slew of assets that includes cryptocurrencies. It will encompass the Federal Open Market Committee or FOMC members, regional bank presidents, and other officials including staff officers, bond desk managers, and employees who regularly attend board meetings. The new regulation also extends to spouses and minor children.
Apart from crypto, the latest rules cover a wide range of assets classes like individual stocks or sector funds or hold investments in individual bonds, agency securities, commodities, or foreign currencies. They also can’t enter into derivatives contracts, and engage in short sales or purchasing securities on margin.
According to the press release, the Federal Reserve expects that additional staff will become subject to all or parts of these rules after the completion of further review and analysis. The rules “aim to support public confidence in the impartiality and integrity of the Committee’s work by guarding against even the appearance of any conflict of interest,” the statement also added.
The central bank’s hawkish stance comes in the wake of controversies surrounding the resignation of two of its former top execs Eric Rosengren of Boston and Robert Kaplan over their stock holdings, last year.
Fed views crypto and stablecoins as ‘risk to financial stability’
As per recently released minutes, the central bank during a January meeting, had a discussion on the cryptocurrency market, including stablecoins where officials raised alarm bells on the growth of the crypto industry. The meeting further stated that “some participants saw emerging risks to financial stability associated with the rapid growth in crypto-assets and decentralized finance platforms.”
In terms of stablecoins, Fed mentioned a potential run risk, which characterizes them as “another vulnerability in funding markets.”
Coming back to the new regulations, Fed officials currently holding market positions will still have 12 months’ time to close their portfolios. New officials will have six months to do so. In the future, officials covered by the new rules are required to provide 45 days’ notice before making any permissible asset purchases, a restriction that will go into effect July 1.