US regulators warn of risks from crypto-asset sector

The US regulatory agencies warn that risks like fraud and scams, legal uncertainties, inaccurate or misleading representations and disclosures, and volatility is associated with crypto-assets and the participants and banking organizations should be aware of them, the US regulators said in a joint statement.

The joint statement 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 called for a possible contagion risk in 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, which cannot be mitigated or controlled, do not migrate to the banking system, the joint statement by the US regulators said.

The collapse of the trading platform FTX in 2022 has resulted in worries among the regulatory authorities. The market is crowded with traders and investors looking to make quick profits from cryptocurrencies, but there are risks and volatility in the market.

FTX was a high-profile cryptocurrency exchange that 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 studying any proposals from banking organizations to engage in activities that involve crypto-assets, the statement said.

Given the serious risks which 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 not prohibited nor discouraged from providing banking services to customers of any specific class or type, as allowed by law or regulation, the report said.

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