Financial regulators in the United States have issued a joint statement to banks regarding the risks posed by crypto-assets. Will it drive institutional adoption away?
The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a joint statement highlighting the “key risks” associated with crypto-assets. This is in light of recent events, such as the failures of FTX, Luna, Three Arrow Capitals, and other crypto-lending protocols.
According to the statement, regulatory bodies will neither prohibit nor discourage banking organisations from engaging in the cryptocurrency sector. They will, however, closely monitor banks with crypto exposure.
The regulatory bodies in the United States want to ensure that crypto-asset risks do not migrate to the banking system. They are not only monitoring banks with crypto exposure, but they will also carefully review future bank proposals to participate in crypto-related services.
Many well-known American banks have begun to offer cryptocurrency-related services. Goldman Sachs, an American investment banking firm, launched a Bitcoin-backed cash loan product in April 2022. The Bank of New York Mellon, the world’s largest custody bank, announced in October that it would provide cryptocurrency asset custody.
The regulators’ goal is to align banks’ crypto asset-related activities with safe and sound banking practises. Banks’ crypto services must adhere to consumer protection, legal permissibility, and other applicable laws and regulations.
“The agencies believe that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralised network or similar system is highly likely to be inconsistent with safe and sound banking practises,” according to the statement.
Banks are expected to de-risk a large number of blockchain-related companies, according to the community. Others, on the other hand, believe that institutions will figure out safe and proper practises.