The Federal Reserve, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) just released a joint statement.
Do not touch (too much) cryptocurrencies!
No new guidance or recommendations appear there, just a reminder of banks’ security obligations and a warning about their foray into cryptocurrencies.
Given the significant risks highlighted by the recent bankruptcies of several major cryptocurrency companies, agencies continue to adopt a cautious approach to current or proposed cryptocurrency assets and exposures at each banking organization.
Statement dated January 3, 2023
If the statement again specifies that banking institutions can do business with cryptocurrency companies, as long as they operate within the law, warns, however, against the risks of fraud, swindling and “unfair, misleading or abusive” practices which are rampant in this environment and mainly harm consumers.. Also warn about sensitivity of stablecoins to massive executions which could cause a bank run risks bringing down the entire system. Cryptocurrency storage, a central topic if any, is also mentioned as an issue.
Litany of risks
Issuing digital tokens or keeping them on the balance sheet is also a concern.
Based on the Agencies’ current understanding and experience to date, the Agencies believe that the issuance or holding as primary crypto-assets issued, stored or transferred on an open, public and/or decentralized or similar system is highly susceptible to be incompatible with safe and sound banking practices.
Statement dated January 3, 2023
And to clarify the point, the three regulators admitted that they see “significant security and robustness issues with business models that focus on cryptocurrency-related businesses or have exposures concentrated in the cryptocurrency sector.”
The legal chapter obviously also appears in the declaration, in particular the uncertainty still reigning over acquisitions and property rights. But still the interdependence of crypto companies whose ravages we continue to observe. After the series of failures triggered last year by the fall of the Earth (Moon), it is the FTX sequence that has not yet delivered all its corpses. The agencies report the risk of contagion to the banks involved in the ecosystem.
It is important that risks in the cryptocurrency industry that cannot be mitigated or controlled do not migrate to the banking system.
Statement dated January 3, 2023
Banks, it should be remembered, are a highly regulated industry. As such, they are highly supervised, nationally but also supranationally, with the Basel Committee on Banking Supervision, which sets international banking standards. He also just capped banks’ exposure to cryptocurrencies.