Prudential supervision refers to the regulatory oversight exercised by financial authorities over institutions to ensure their financial soundness and stability. This involves monitoring capital adequacy, risk management practices, liquidity, and governance structures to prevent failures that could harm consumers or cause systemic disruption. In the context of digital assets, it applies to entities like stablecoin issuers, crypto exchanges, and digital asset banks. The aim is to safeguard the financial system against undue risks. It seeks to maintain the safety and soundness of supervised entities.
Context
News reports frequently cover calls from regulators and policymakers for enhanced prudential supervision of digital asset service providers, particularly those handling customer funds or issuing stablecoins. Debates often focus on adapting existing regulatory frameworks to the unique characteristics of crypto assets and identifying which entities fall under such oversight. The implementation of robust prudential standards is a critical step towards greater institutional adoption and regulatory acceptance of digital assets.
The new federal stablecoin law mandates full reserve backing and public monthly attestations, fundamentally recasting issuance as a federally regulated payments activity.
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