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The Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have released a joint statement warning about the risks that crypto-assets pose to banking organizations.
“The events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector,” the statement said. “These events highlight a number of key risks associated with crypto-assets and crypto-asset sector participants that banking organizations should be aware of.”
Some of the risks listed by the agencies include the risk of fraud and scams, legal uncertainties surrounding custody practices, redemptions, and ownership rights, inaccurate or misleading representations and disclosures by crypto-asset companies, significant volatility in crypto-asset markets, susceptibility of stablecoins to run risk, contagion risk within the crypto-asset sector, and a lack of maturity and robustness in risk management and governance practices in the crypto-asset sector.
The agencies also warned about the “heightened risks associated with open, public, and/or decentralized networks,” including the lack of governance mechanisms, the absence of contracts or standards, and vulnerabilities related to cyber-attacks, outages, lost or trapped assets, and illicit finance.
“It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system,” the statement said.
While banking organizations are not prohibited from providing services to crypto-asset customers, the agencies emphasized that they must be able to address safety and soundness, consumer protection, and anti-money laundering requirements in their crypto-asset activities.
“The agencies are supervising banking organizations that may be exposed to risks stemming from the crypto-asset sector and carefully reviewing any proposals from banking organizations to engage in activities that involve crypto-assets,” the statement said. “The agencies are continuing to assess whether or how current and proposed crypto-asset-related activities by banking organizations can be conducted in a manner that adequately addresses safety and soundness, consumer protection, and anti-money laundering requirements.”
The agencies also encouraged banking organizations to carefully assess their own risks related to crypto-assets and to consult with their primary federal regulator as needed. They also urged banking organizations to continue to monitor and assess the risks associated with crypto-assets and to take appropriate steps to address any emerging risks.