US federal agencies warn banks about crypto risks

The Federal Reserve, FDIC and OCC have released a joint statement in order to warn banks about the risks associated with crypto assets.

The Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) released the statement in question on 3 January 2023, and they based their warnings on various issues identified in the crypto sector in 2022.

The agencies highlighted that there are several risks that cannot be managed in the crypto asset sector and that those risks should not make their way to the traditional banking system. Some of the risks they identified include fraud, volatility, and contagion. 

According to cointelegraph.com, based on the agencies’ experience so far, they concluded that issuing or holding as principal crypto assets that are issued, stored, or transferred on an open, public, or decentralised network is likely to be incompatible with safe banking practices. 

The federal agencies also touched on the state of crypto regulation in the United States and how it can change on a case-by-case approach. Through these case-by-case approaches, the agencies continue to gather knowledge and expertise as well as the risks crypto assets may pose to banking organisations and their clients.

The FCA issued its own warnings 

According to moneymarketing.co.uk, the Financial Conduct Authority has renewed its warnings about the high-risk nature of cryptocurrencies following the collapse of FTX. The FCA reported that as many as 80,000 UK investors were left out of pocket because of the collapse. The regulator’s director of the newly created digital assets unit highlighted FTX’s peculiar nature, as the company was issuing tokens, trading, and safeguarding funds in a single place. 

According to the same source, FCA representatives expressed their concerns that consumers don’t understand the risk they are getting into with crypto, which is why they are working with the Treasury, Bank of England, and other authorities to put in place the regulatory regime for crypto assets. 

As far as actual measures are concerned, the regulator has already banned the sale of derivatives and exchange-traded notes (ETNs) that reference certain types of crypto assets to retail consumers. This is because the FCA views these products as ill-suited for retail consumers due to the harm they pose.