The US Federal Reserve (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Currency Controller (OCC) issued a joint statement Tuesday to alert banks to cryptocurrencies and associated risks. Here are the details…
Three major regulators made statements for cryptocurrencies
Three US regulators issued a joint statement to highlight the “significant risks” associated with cryptoassets. This comes in light of events over the past year such as the collapse of FTX, Luna, Three Arrow Capitals, and various other crypto lending protocols. According to the trio of U.S. banking regulators, financial institutions should be careful not to be exposed to cryptocurrency-related fraud and fraud, misleading representations and disclosures from firms, market volatility, stablecoins and industry “contamination”.
The statement further indicates that regulators will neither prohibit nor discourage banking institutions from engaging with the crypto sector. However, they will closely monitor banks with crypto risks. The regulators wrote in the statement that issuing or holding crypto assets on a decentralized network is inconsistent with safe and sound banking practices. But he added that organizations should not be deterred from providing such services if permitted by law. The statement included the following statements:
Institutions believe that issuing or holding as major crypto assets that are issued, stored or transferred on a public and/or decentralized network or similar system is likely to be inconsistent with safe and sound banking practices.
Risks should not pass to the banking system
As a result, US regulators want to ensure that crypto-asset risks do not pass onto the banking system. For this, they will carefully scrutinize not only the banks exposed to crypto, but also their future proposals to participate in crypto-related services. Many major US banks offer services related to cryptocurrencies. For example, cryptocoin.com As we reported, in April 2022, Goldman Sachs created a Bitcoin-backed cash loan product. The Bank of New York Mellon announced in October that it will provide custody services for crypto.
Specifically, the OCC requires banks to obtain regulatory approval before holding cryptocurrencies on behalf of customers, according to the statement. On the other hand, the Fed has required banks to notify supervisors prior to any crypto-related activity. Bitcoin-led cryptocurrencies often attract investors due to their ability to eliminate third-party intermediaries in financial transactions, such as banks, with Blockchain technology.
Following the collapse of crypto exchange FTX in November 2022, regulators around the world stepped up their work towards the cryptocurrency industry after insufficient disclosure and allegations of misappropriation of client funds emerged. Currently, FTX founder and former CEO Sam Bankman-Fried is on trial for crimes such as fraud and money laundering.
