Just two months after the financial world was shocked by the collapse of crypto exchange FTX, US regulators advised banks to be more cautious about the risks of fraud, legal uncertainty, 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 that are heavily focused on cryptocurrency in their first joint statement on the topic.
The regulators also stated that banks are “very likely” to be at odds with safe and sound banking practises when they issue or keep crypto tokens kept on open, decentralised networks, potentially striking a blow to some institutions’ ongoing efforts to provide consumers crypto services.
The announcement follows months of regulatory reluctance to provide consistent guidelines or regulations on cryptocurrencies, despite banks’ requests for more clarity.
Prior to engage in specific crypto-related activities, such as holding tokens on behalf of clients, the OCC previously stated that banks must acquire regulatory approval, whereas the Fed previously encouraged banks to alert their supervisors before moving further with any activity involving crypto.
According to the joint statement, the authorities claimed they are closely examining bank proposals to engage in cryptocurrency activities and monitoring institutions that might be exposed to risks related to cryptocurrencies.
The announcement comes as organisations dealing with digital assets deal with high-profile failures, most notably that of the cryptocurrency exchange FTX.
In a federal court in Manhattan this week, founder Sam Bankman-Fried entered a not guilty plea to eight felony charges, including conspiracy to commit money laundering and wire fraud.
The Fed, FDIC, and OCC highlighted a number of dangers related to cryptocurrencies, including as the instability of the markets for digital assets, the risk of industry contagion, and poor risk management.
The regulators declared they would continue to collaborate with other agencies on cryptocurrency concerns and will make additional declarations about banks’ operations linked to cryptocurrencies as necessary.
