U.S. Regulators Warn Banks Against Using Crypto, Claim It’s Not ‘Safe and Sound’

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• The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a joint statement on Tuesday warning banks that deal with crypto to be extra cautious.
• The regulators described multiple risks associated with participating in the crypto economy.
• The regulators said that issuing or holding crypto assets is “highly likely to be inconsistent with safe and sound banking practices”.
• The statement also said that the regulators have “significant safety and soundness concerns” regarding how crypto-related companies run their businesses.

The U.S. Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a joint statement warning banks of risks associated with cryptocurrencies.

The American regulators said that banks should aware of the multiple crypto risks like fraud, legal uncertainties, inaccurate disclosures by crypto companies, volatility in the markets, stablecoin risks and contagion risks, and others.

Banks should be extra careful when dealing with crypto-related companies to prevent risks that “cannot be mitigated or controlled [from migrating] to the banking system”, the statement said. The regulators alluded to the recent blow-up of the second-largest crypto exchange FTX as a reason for taking a cautious approach to crypto.

“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,” they said. The regulators also said that issuing or holding crypto assets is “highly likely inconsistent with safe and sound banking practices”.

“Based on the agencies’ current understanding and experience to date, the agencies believe 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 statement said. The regulators added that they have “significant safety and soundness concerns” about crypto-related companies and activities.

The regulators’ statement comes after years of inability to provide a clear regulatory framework for the cryptocurrency industry. Coinbase (NASDAQ:COIN) CEO Brian Armstrong and others have argued that the hesitancy of U.S. regulators to introduce regulation in crypto markets has caused the FTX phenomenon.

On the Flipside

• It’s unclear when the U.S. regulators will introduce regulations to the crypto industry.
• There are no known banks that have blown up because of dealing in cryptocurrencies.

Why You Should Care

Cryptocurrencies have been playing a bigger role in financial markets around the world over the last year. While the recent developments in the crypto industry have no doubt been a huge reputational hit, the underlying technology is still seen by many as superior to how the traditional banking system works.

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See original on DailyCoin