REGULATORS ISSUE JOINT STATEMENT ON RISKS OF CRYPTO

Regulators’ Joint Statement on Risks of Crypto Assets and Banking Services

Crypto assets are extremely volatile and, hence, possess huge amounts of risk. Therefore, regulators around the globe are working on ways that traditional finance can adopt these blockchain-based assets without risking their financial health. As a result of the same, the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a joint statement surrounding cryptocurrencies. 

As per the joint statement issued on January 3, 2023, the regulators noted that while banks are not barred or discouraged from providing banking services to customers of any specific class or type, the agencies are currently assessing how crypto-related activities could be carried out without posing risks to customers. 

“The agencies are continuing to assess whether or how current and proposed crypto-asset-related activities by banking organizations can be conducted in a manner that adequately addresses safety and soundness, consumer protection, legal permissibility, and compliance with applicable laws and regulations, including anti-money laundering and illicit finance statutes and rules,” read the joint statement from the regulators. 

The regulators also noted that there are significant risks that have come to light following the recent failures of several “large crypto-asset companies.” As a result, the agencies plan to take a “careful and cautious approach related to current or proposed crypto-asset-related activities and exposures at each banking organization.” 

2022 has been deemed as one of the worst years for the crypto space and the regulators noted multiple fraud and scams, legal uncertainties, inaccurate or misleading representations or disclosures, volatility, and contagion risk flooding the market causing significant damages to investors’ portfolios.

The joint statement from the agencies stated that “it is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system.”

The regulators believe that prior to engaging in crypto-related activities and providing similar services, banks should ensure “risk management, including board oversight, policies, procedures, risk assessments, controls, gates and guardrails, and monitoring, to effectively identify and manage risks.” 

“Banking organizations should ensure that crypto-asset-related activities can be performed in a safe and sound manner, are legally permissible, and comply with applicable laws and regulations, including those designed to protect consumers (such as fair lending laws and prohibitions against unfair, deceptive, or abusive acts or practices),” the statement said.

As reported earlier by Bitnation, the research arm of the United States Federal Reserve recently published a pair of reports on the risks associated with the world of decentralized finance, or DeFi, and compared to centralized finance or CeFi. The papers noted that “centralized crypto-entities that act as counterparties to retail users in the digital asset ecosystem are generally not subject to capital, liquidity, or comprehensive disclosure requirements.”