The Federal Reserve, the FDIC and the Office of the Comptroller of the Currency (OCC) issued a joint statement on Tuesday Warning of “significant” risks that crypto assets can pose to the wider banking system.
“It is important that risks in the crypto-asset industry that cannot be mitigated or controlled do not migrate to the banking system,” the agencies said in a joint statement.
“Given the significant risks highlighted by the recent failures of several large crypto-asset companies, the agencies continue to take a careful and cautious approach to current or proposed crypto-asset-related activities and exposures in each organization. banking.”
Regulators are warning banks against a long list of crypto risks, including fraud, volatility, poor risk management, and contagion within the crypto industry.
The agencies also reported legal uncertainties regarding takeovers, ownership rights, and custody practices for crypto assets.
Tuesday’s statement came minutes before Sam Bankman-Fried, co-founder and former CEO of failed crypto exchange FTX, pleaded not guilty Over eight counts of wire fraud, security fraud and conspiracy.
Bankman-Fried faces up to 115 years in prison for his alleged role in the most publicized crypto meltdown to date.
“Not in line with safe and sound banking practices”
While regulators are still exploring whether or how banks could incorporate crypto into their operations in a way that is safe and protects consumers, the regulators trifecta says issuing or holding crypto that is issued, stored, or transferred over a network open, public or decentralized is “inconsistent” with safe and sound banking practices.
“Based on the agencies’ current understanding and experience to date, the agencies believe that issuing or holding as primary crypto-assets that are issued, stored, or transferred over an open, public, and / or decentralized, or a similar system is highly likely to be incompatible with safe and sound banking practices,” the statement read.
“In addition, agencies have significant safety and soundness concerns with business models that are concentrated in crypto-asset-related business or have concentrated exposures to the crypto-asset sector.”
The agencies oversee banks that may be exposed to crypto industry risks and review any proposals from banks to engage in crypto business.
The OCC has put in place rules that banks must apply for permission to be able to engage in crypto activities. Acting Comptroller of the Currency Michael Hsu compared crypto to derivatives in the early 2000s, warning of contagion risk with crypto and saying industry growth has been driven by hype.
The Financial Stability Supervisory Board closely monitors cryptocurrency markets, but has yet to consider crypto activities as systemic.
A few bills were suggested in Congress to regulate crypto, although it will take time for the legislation to cross the finish line.
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