Financial Stability Oversight Council Removes Crypto 'Vulnerability' Status Amid Changes in Regulation

The Financial Stability Oversight Council (FSOC) has reclassified digital assets, eliminating their status as a systemic risk in the United States. This shift follows a pro-crypto order from former President Trump, the introduction of the GENIUS Act, and changes in regulatory perspectives regarding cryptocurrency.

Key Takeaways

In its 2025 report, the FSOC removed crypto from the list of financial vulnerabilities, reclassifying it as a significant development to monitor.
This change is influenced by increased institutional participation in cryptocurrencies through exchange-traded funds (ETFs) and the tokenization of assets.
The FSOC's approach marks a departure from earlier warnings about the risks posed by digital assets and recognizes their potential benefits to the financial system.
Legislative changes, including the GENIUS Act and new rules from the SEC and OCC, support a more favorable regulatory environment for cryptocurrencies and digital assets.

FSOC removes crypto from U.S. systemic risk list in 2025

Overview of Changes in Regulation

The FSOC's 2022 report indicated that crypto assets could threaten the stability of the U.S. financial system, resulting in requests for new legislation covering spot markets and stablecoins. The subsequent 2024 report reinforced these concerns, highlighting that dollar stablecoins posed a risk due to their vulnerability without adequate regulations.

However, the 2025 report adopts a more optimistic tone, asserting that U.S. regulators have retracted previous broad warnings about cryptocurrency involvement. The report emphasizes that the growth of dollar stablecoins could enhance the dollar's global position in the next decade. Treasury Secretary Scott Bessent's accompanying letter underlined that merely identifying vulnerabilities is insufficient, stressing the importance of promoting long-term economic growth for financial stability.

Key Developments in 2025

Three significant policy changes coincided with the FSOC's new stance in 2025:

Trump's Executive Order: Former President Trump's Executive Order 14178 revoked Biden's crypto order, fostering an environment to promote responsible digital asset growth while prohibiting a central bank digital currency.
GENIUS Act Implementation: Congress passed the GENIUS Act in July 2025, which encourages stablecoin issuance that is fully backed and regulates the industry with oversight from key financial agencies, such as the Federal Reserve.
SEC Rule Changes: In January 2025, the SEC revoked Staff Accounting Bulletin 121, which had mandated that custodial crypto assets be listed as liabilities on bank balance sheets. Additionally, the OCC issued new guidelines allowing national banks to engage in cryptocurrency transactions.

This regulatory evolution highlights how the U.S. government is adapting to the growing influence of cryptocurrencies and is working towards creating a balanced regulatory framework.

Historical Context and Future Outlook

Historically, the FSOC had identified digital assets as a priority area, recommending additional regulation for spot markets and stablecoins. Between 2022 and 2024, the council expressed concerns regarding price volatility and operational risks relating to cryptocurrencies. However, the latest report does not highlight significant concerns or provide recommendations for digital assets, indicating a sense of regulatory confidence in managing these investments.

Globally, the FSOC's stance differs from that of other regulatory bodies. The Financial Stability Board (FSB)'s review in October 2025 highlighted ongoing risks related to cryptocurrencies, while the Financial Action Task Force (FATF) reported inconsistent compliance with anti-money-laundering regulations across jurisdictions.

The reclassification of cryptocurrencies by the FSOC marks an important turning point, alleviating previous apprehensions among banks and financial institutions about involvement in crypto-related activities. Although the new policies do not create mandates for cryptocurrency allocations, they effectively minimize the chances of stringent regulations that could limit cryptocurrency-related operations.

As the market matures and regulatory clarity improves, the future of cryptocurrencies in the U.S. appears increasingly positive, with significant support from industry and government initiatives. The approval of spot Bitcoin and Ethereum ETFs, along with the provisions of the GENIUS Act, further establishes a legal framework for cryptocurrencies in the U.S. financial landscape.

In conclusion, the FSOC's decision to no longer classify cryptocurrencies as a financial vulnerability reflects a forward-looking approach, indicating that existing regulatory tools are now considered sufficient to manage current risks associated with digital assets.