The US regulators warned that there were risks associated with cryptocurrencies, such as fraud and scams, legal uncertainties, inaccurate or misleading representations and disclosures, and volatility.
The Joint Statement, the first of its kind, was issued by the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation FDIC and the Office of the Comptroller of the Currency OCC on Tuesday. Contagion risk within the sector could result from interconnections among certain crypto-asset participants as one of the concerns.
It is important that risks related to the sector that can't be mitigated or controlled do not migrate to the banking system, according to a joint statement by the US regulators.
The collapse of the trading platform FTX in 2022 has caused concern among regulators. The market is looking for quick profits, and the market has attracted traders and investors to make quick profits because of the risks and volatility.
FTX was a high-profile exchange that collapsed in November due to misappropriation of customer funds.
The agencies are looking at banking organizations that may be exposed to risks stemming from the sector of cryptocurrencies and reviewing proposals from banking organizations to engage in activities that involve cryptocurrencies-assets, the statement said.
The statement said agencies continued to take a careful and cautious approach when it comes to current or proposed crypto-asset related activities and exposures at each banking organization, because of the significant risks highlighted by the recent failures of several large crypto-asset companies.
It said banking organizations are not forbidden nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.
Banking organizations should ensure appropriate risk management, including board oversight, policies, procedures, risk assessments, controls, gates and guardrails, and monitoring, in order to identify and manage risks, it noted.