In light of the collapse of the cryptocurrency exchange FTX and the increased market volatility, US authorities have cautioned banks to be alert to the dangers associated with exposure to the sector of cryptocurrencies.
In response to concerns about the potential for contagion, the Federal Reserve, Federal Deposit Insurance Corp (FDIC), and the Office of the Comptroller of the Currency say they are stepping up their oversight of banks with business interests in cryptocurrencies and closely examining any proposals from banks to engage with the sector.
The authorities said that it is “very likely” that banks producing or storing crypto tokens kept on open, decentralized networks will not follow safe and sound banking procedures.
The authorities say in a statement that they “continue to adopt a prudent and cautious approach linked to current or prospective crypto-asset-related activities and exposures at each financial institution” given the “significant risks highlighted by recent collapses of numerous prominent crypto-asset organizations.”
The New York Department of Financial Services (DFS) mandated in December that banks notify it at least 90 days in advance of any plans using virtual currencies. Even though a third party will handle some of those tasks, the requirements still apply.
The concerns of fraud and scams, excessive volatility, legal ambiguity, and erroneous or deceptive statements and disclosures by cryptocurrency asset firms are highlighted by legislators.
The statement continues: “The agencies continue to assess whether or how current and proposed crypto-asset-related activities by banking organizations can be conducted in a manner that is safe and sound, legally permissible, and in compliance with applicable laws and regulations, including those designed to protect consumers.”