Cryptocurrency Risks Warning Issued to US Banks
United States financial regulators have issued their first-ever combined warning to banks regarding cryptocurrency risks and the potential dangers of crypto markets and digital assets.
The regulators warned the financial institutions to guard against fraud, legal uncertainty, and deceptive disclosures by digital asset companies. A notice was also sent to banks over the "contagion risk" posed by the sector.
It comes less than two months after the trading platform FTX went offline, which sent shockwaves across the cryptocurrency market. The joint statement from the Federal Reserve and Federal Deposit Insurance Corporation, alongside the Office of the Comptroller of the Currency, stated that they were closely watching the activity of banking organizations regarding cryptocurrencies.
According to the statement, "The events of the previous year have been characterized by high volatility and the exposing of weaknesses in the crypto-asset industry."
The authorities also stated that it was "very likely inconsistent with safe and sound banking procedures" to issue or hold tokens stored on public, decentralized networks.
US regulators issue warning to banks on cryptocurrency risks
In addition, banks were encouraged to take action to prevent issues in the digital asset market from spreading to the broader financial system.
"Risks associated with the crypto-asset sector that cannot be mitigated or managed mustn't move to the financial system," it continued.
"The banking system is not a suitable environment for these risks."
The statement released on Tuesday follows several months of reluctance by watchdogs of the US financial industry to publish universal recommendations on cryptocurrencies, even though institutions have requested clearer advice from authorities.
The failure of the FTX exchange in November sent shockwaves through the sector. It was the second-largest cryptocurrency exchange in the world, serving as the gateway for millions of consumers to enter the market for digital assets.
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