U.S. banks should keep digital assets at arm’s length considering last year’s landmark events that exposed the sector’s vulnerabilities, three top U.S. financial regulators have warned.
In a joint statement, the U.S. Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) listed some of the risks they believe affect digital assets and called for vigilance when dealing with these assets.
Today, we joined other Federal bank regulators to issue a joint statement highlighting key risks for banks associated with crypto-assets and the crypto-asset sector. This statement describes our collective approaches to supervision in this area. https://t.co/IqrelB8MEA pic.twitter.com/x4VA7pJ4zQ
— FDIC (@FDICgov) January 3, 2023
The three watchdogs listed fraud and scams, inaccurate and misleading representations by VASPs, significant volatility, and a lack of mature and robust risk management practices as some of the risks facing digital assets. They also listed legal uncertainties as a major risk, and despite being the regulators expected to issue guidance to financial service providers to reduce this uncertainty, they didn’t offer any new regulatory updates.
“It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system. Given the significant risks highlighted by recent failures of several large crypto-asset companies, the agencies continue to take a careful and cautious approach related to current or proposed crypto-asset-related activities and exposures at each banking organization,” the statement read.
U.S. banks are not prohibited from engaging in digital assets and are allowed to offer banking services to VASPs. However, the regulators pledged to keep assessing these activities and relationships to ensure they uphold “safety and soundness, consumer protection, legal permissibility, and compliance with applicable laws and regulations, including anti-money laundering and illicit finance statutes and rules.”
The watchdogs also warned banks on the level of their exposure to digital assets, saying that “issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices.”
The latest guidance is consistent with the regulators’ stance over the years. Just a month ago, the Financial Stability Oversight Council—which all three watchdogs are part of—issued a report that claimed risks from digital assets are key priorities for regulators this year.
Individually, the three regulators have warned banks against digital assets, with the OCC requiring all banks to obtain regulatory approval before any related activities.
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