U.S. financial regulators have released a joint statement warning banks about the risks of crypto-assets and outlining the importance of compliance with consumer protection and other applicable laws and regulations for banks providing crypto services.
Three U.S. regulators, including the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), issued a joint statement to highlight ‘key risks’ associated with crypto-assets. This comes in light of events of the past year, such as the collapse of FTX, Luna, Three Arrow Capital, and various other crypto-lending protocols.
The statement further reads that regulatory bodies will neither prohibit nor discourage banking organizations from engaging with the crypto sector. But, they will closely monitor banks with crypto exposures.
Crypto regulations starting with banks
The U.S. regulatory bodies want to ensure that crypto-asset risks do not migrate to the banking system. For that, they are not only monitoring the banks that have crypto exposure but will carefully review future proposals from banks to participate in crypto-related services.
Many notable American banks have indulged in providing services related to cryptocurrencies. In April 2022, American investment banking company, Goldman Sachs, created a Bitcoin-backed cash loan product. Bank of New York Mellon, the world’s biggest custody bank, announced in October that they would provide custody service for cryptocurrency assets.
Inconsistencies with safe and sound banking practices
The regulators aim to align the crypto assets-related activities from banks with safe and sound banking practices. The crypto services provided by banks should comply with consumer protection, legal permissibility, and other applicable laws and regulations.
According to the statement the regulatory agencies have stated that it is highly likely that issuing or holding crypto-assets as principal, especially those that are issued, stored, or transferred on open, public, decentralized networks or similar systems, would be inconsistent with safe and sound banking practices. The community expects to see mass de-risking of blockchain-related companies by banks. In contrast, others believe institutions will figure out safe and proper practices.
Safe and proper custody will take some time to figure out. Little by little, institutions will figure it out. Demand is high.
— Eugene Prokopenk◎🇺🇦 (@EugeneProko) January 3, 2023