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On Tuesday, the Federal Reserve, FDIC and OCC have a joint statement about the risks of crypto assets. The statement also addressed threats to banks, such as fraud, inaccurate or misleading representations by crypto companies, and market volatility.
According to the agencies, “risks related to the crypto asset sector that cannot be mitigated or controlled do not migrate into the banking system.” The statement said they are taking a cautious approach to crypto assets due to the significant risks and failures of several major crypto asset companies (see FTX). The Fed, FDIC and OCC also said they are evaluating proposed crypto asset activities and exposures with each banking organization to ensure maximum consumer protection, as well as crypto compliance with existing laws.
The statement highlighted current concerns about cryptocurrency, including legal questions surrounding redemptions and proper crypto asset custody procedures. The statement was released shortly before disgraced FTX crypto exchange co-founder Sam Bankman-Fried, who faces more than 100 years in prison if convicted, entered a not guilty plea to conspiracy, wire fraud, and securities fraud, among others.
While the agencies pointed out saying that banking organizations “are not prohibited or discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation,” they also stated that they will continue to “closely monitor crypto.” . asset-related exposures of banking organizations.”
One thing was clear, despite the ambiguities: The Fed, FDIC and OCC view decentralized systems as akin to a minefield full of dangers for uninformed investors:
Increased risks associated with open, public and/or decentralized networks or similar systems, including but not limited to the lack of governance mechanisms overseeing the system; the absence of contracts or standards to clearly define roles, responsibilities and liabilities; and vulnerabilities related to cyber-attacks, malfunctions, lost or embedded assets, and illicit financing.