Another U.S. government agency has indicated further scrutiny of digital asset businesses. The Federal Deposit Insurance Corporation (FDIC) has released a letter aimed at every institution falling within its remit expressing concerns over risks posed by the ‘rapidly evolving’ digital asset industry, including financial stability and asset safety.
In the letter released last week, it instructs those institutions falling within the FDIC remit to notify the agency ‘promptly’ prior to engaging in a digital asset-related activity. It also set out a non-exhaustive list of potential risks posed by digital assets, which are of particular concern to the FDIC.
These include:
- The ‘safety and soundness’ of digital asset-related activities in light of the ‘unique credit, liquidity, market, pricing and operational risks’ present in the industry;
- The systemic risk posed by potential disruption to ‘crypto-asset’ transactions and activities which could, in turn, create a ‘run’ on financial assets backing digital assets
- Consumer protection, in particular consumer confusion regarding the assets being offered by digital asset companies.
The opening to the letter reads:
“As a result of the dynamic nature of crypto-related activities, it is difficult for institutions, as well as the FDIC, to adequately assess the safety and soundness, financial stability, and consumer protection implications without considering each crypto-related activity on an individual basis. Therefore, the FDIC is requesting all FDIC-supervised institutions that are considering engaging in crypto-related activities to notify the FDIC of their intent and to provide all necessary information that would allow the FDIC to engage with the institution regarding related risks.”
It is little wonder that the FDIC has taken an interest in the digital asset industry. The agency is in charge of supplying insurance to depositors into American financial institutions with a broad mandate to maintain stability and public confidence in the U.S. financial system. As a part of that, it supervises financial institutions for safety, soundness, and consumer protection, and to that end, it’s a well-respected U.S. institution: since its establishment in 1933, no depositor has ever lost a penny of FDIC-insured funds.
The FDIC’s letter adds another voice to the chorus of U.S. officials and regulatory bodies expressing concerns about digital asset risk, indicating a broad push toward digital asset regulation through 2022 and beyond. That push was manifest in an executive order signed by President Joe Biden in March, which directed that U.S. federal agencies collaborate in examining the risks and benefits offered by digital assets.
Perhaps more indicative of this is the fact that the specific concerns identified by the FDIC are all ones that officials have touched on in recent months.
This latest publication by FDIC is itself a follow-up to a joint statement issued between that agency, the U.S. Federal Reserve, and the U.S. Office of the Comptroller of the Currency (OCC), promising more guidance on stablecoins and other regulatory issues in 2022.
Further, last week, SEC Chair Gary Gensler warned of potential adverse impacts on financial stability arising from dubiously-backed stablecoins.
The U.S. Treasury also published its semiannual agenda of regulations in which the Financial Crimes Enforcement Network (FinCEN) proposed to clarify that the information disclosure requirements of the Bank Secrecy Act apply to digital asset transfers.
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