Three financial agencies warn banks of the inconsistencies and concerns with crypto assets.
Key Details
- The Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (FDIC) released a joint statement warning banks of eight cryptocurrency risks.
- The eight highlighted risks…
- Risks of fraud and scams
- Legal uncertainties
- Misleading representations by crypto-asset companies
- Significant volatility of the sector
- Susceptibility of stablecoin risks
- Contagion risks
- Lack of maturity in governance practices
- Heightened risks associated with open, public, and decentralized networks
- The federal agencies are warning banks that cryptocurrencies are inconsistent with safe banking practices and banks should be wary.
Why it’s news
Cryptocurrencies are a relatively new market that has had a rough time in the last year. The market is relatively unstable and has little to no regulation, and now major financial agencies are warning banks of the risks associated with digital assets.
The Fed, the Office of the Comptroller of the Currency, and the FDIC released a joint statement warning banks of the top eight risks related to crypto assets.
“Based on the agencies’ current understanding and experience to date, the agencies believe that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network or similar system is highly likely to be inconsistent with safe and sound banking practices,” the joint statement reads.
The eight risks include many risks that have been discussed in the crypto space for the last few years, including the risk of contagion, which has been seen recently with the fall of the crypto exchange FTX.
Banks have feared crypto due to the high volatility of the sector, and following this warning from the financial institutions, it wouldn’t come as a surprise if more banks stayed reluctant to provide finances for cryptocurrencies.
