The banking regulators in the USA warn financial institutions against dealing with cryptocurrency as it may expose them to the risk of scams and fraud.
Interestingly, the comments came just weeks after the collapse of the crypto exchange FTX. Here, the US regulators commented in a joint statement from the Federal Deposit Insurance Corp., Federal Reserve, and the Office of the Comptroller of the Currency. The statement read that the events of the last year were marked by volatility and the exposure of vulnerabilities in the crypto-asset sector.
The regulators further said that the risks include fraud and scams among crypto-asset sector participants. And it is also a contagion risk within the crypto-asset sector. This results from interconnections among some crypto-asset participants.
Now, it is about two months after the bankruptcy filing of FTX. So, the industry is exposed to poor risk management, interconnected risks, and outright fraud.
Further, the statement indicated that the US regulators were still assessing how banks could adopt crypto. At the same time, regulations should adhere to the various consumer protection mandates and anti-money laundering laws.
Further, the regulators said there are speculations based on the agencies’ current understanding. And the agencies’ experience to date claimed that they believe there are several risks in issuing and holding principal crypto-assets. They said that crypto assets issued, stored, and transferred on an open, public, or decentralized network are likely inconsistent with the safety and sound banking laws and practices.
Similarly, the US regulators also said they have significant safety and soundness concerns with banks that focus on crypto clients. Here, traditional banks have sidestepped the crypto meltdown. This is unlike the 2008 financial crisis in which they played a central role. Here, one exception is Silvergate Capital, whose shares were battered in the last year.