US regulators warn banks about risks from crypto-asset

risks such as fraud and scams, legal uncertainties, inaccurate or misleading representations and disclosures, volatility is associated with crypto-assets and the participants and banking organizations should be aware of them, the US regulators warned in a joint statement.

The joint statement, issued by the Board of Governors of the Federal Reserve SystemFederal Reserve System, the Federal Deposit Insurance Corporation FDIC and the Office of the Comptroller of the Currency OCC, also referred to corruption risk within the crypto-asset sector, which may result from interconnections among certain crypto-asset participants.

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 joint statement by the US regulators said.

The significant collapse of the trading platform FTX in 2022 has caused concern among regulatory authorities. The market for cryptocurrencies has attracted traders and investors seeking quick profits, with risks and volatility in the market.

FTX was a popular cryptocurrency exchange, and collapsed in November due to reported misappropriation of customer funds.

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.

Given the significant risks that got highlighted by the recent failures of several major crypto-asset companies, the statement said agencies continue to take a careful and cautious approach related to current or proposed crypto-asset related activities and exposures at each banking organization.

Banks are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as allowed by law or regulation, the ECB said in a statement.

Banks should ensure robust risk management, including board oversight, policies, procedures, risk assessments, controls, gates and guardrails, and monitoring, to effectively identify and manage risks, the report said.