US Federal Regulators Publish Joint Statement On Risks Associated With Crypto Assets
Just two months after the financial industry was shocked by the collapse of cryptocurrency exchange FTX, US authorities cautioned banks on Tuesday that they should be extra cautious about the dangers of fraud, confusion in the law, and false disclosures by crypto businesses.
The Federal Reserve, Federal Deposit Insurance Corp. (FDIC), and Office of the Comptroller of the Currency (OCC) expressed their worries about the safety and soundness of bank business models heavily focused on cryptocurrency in their first joint statement on the topic.
The authorities also stated that banks are “very likely” to be at odds with safe and sound banking practices. When they issue or keep crypto tokens on open, decentralized networks, it could strike a blow to numerous institutions’ ongoing efforts to provide customers with safe crypto services.
The fall of FTX was unwelcome and unexpected in the crypto world. In addition to causing enormous losses, it also led the regulatory bodies to tighten control of the industry.
US Regulators Caution Banks To Be Safe
In the early hours of Tuesday, three federal regulatory authorities issued a joint statement outlining the hazards cryptocurrencies pose to financial firms. The Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Board of Governors of the Federal Reserve System (Federal Reserve) co-authored the report.
The statement claims it is crucial to take stricter measures since businesses like FTX, Voyager, and Celsius have failed. The regulators have urged financial institutions to treat crypto assets with extra caution and attention.
The Financial Stability Oversight Council and the Federal Reserve, FDIC, and OCC declared cryptocurrency assets as a “danger group” earlier in the month. The Federal Reserve, the federal agency in charge of guaranteeing bank deposits (FDIC), and the OCC regulates two-thirds of the US banking system.
In a joint press release, the regulatory bodies stated that cryptocurrency-related activity for commercial banks is “very likely incompatible with safe and sound banking practices.”
Thus, these financial institutions should continue to adopt a cautious and circumspect approach to present or projected operations and exposures to crypto-assets in each of their dealings “given the enormous risks highlighted by the recent bankruptcies of numerous prominent crypto organizations.”
The Fed, FDIC, and OCC believe it is crucial to prevent “risks in the crypto-asset industry from migrating to the banking system, which cannot be mitigated.” Nevertheless, the regulators state that banks can still provide their clients with crypto-related services.
After the collapse of the FTX trading platform in mid-November, US Treasury Secretary Janet Yellen vehemently argued for “more effective supervision” of the cryptocurrency industry. Several Fed officials have also advocated for industry regulation.
The Biden administration is also debating whether or not to establish a digital dollar, which has numerous benefits and potential benefits but also several concerns.
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