Agencies: Banks Must Manage Risk Around Crypto-Assets

Three U.S. agencies said that banks must be wary of the risks of crypto-assets.

In a joint statement released Tuesday (Jan. 3), the organizations — the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) — said that while banks are not prohibited or discouraged from providing banking services as permitted by law or regulation, the agencies are assessing how crypto-related activities can be conducted. 

“Given the significant risks highlighted by recent failures of several large crypto-asset companies, the agencies continue to take a careful and cautious approach related to current or proposed crypto-asset-related activities and exposures at each banking organization,” the joint statement said. 

The statement said that the last year has highlighted several risks in the sector that banks should be aware of, including fraud and scams, legal uncertainties, inaccurate or misleading representations or disclosures, volatility and contagion risk. 

“It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system,” the statement said. 

Based on their current understanding, the agencies said, they believe that it is not sound banking practice to issue or hold as principal crypto-assets on an open, public or decentralized network, or to employ business models that are concentrated in activities related to crypto-assets. 

“Banking organizations should ensure that crypto-asset-related activities can be performed in a safe and sound manner, are legally permissible, and comply with applicable laws and regulations, including those designed to protect consumers (such as fair lending laws and prohibitions against unfair, deceptive, or abusive acts or practices),” the statement said.

“Banking organizations should ensure appropriate risk management, including board oversight, policies, procedures, risk assessments, controls, gates and guardrails, and monitoring, to effectively identify and manage risks,” the statement continued.  

PYMNTS research has found that nearly two-thirds of large banks report increases in financial crime, and about one-third said there’s been an increase in cryptocurrency fraud rates. 

Banks and other financial services firms stand at the vanguard in the midst of the battle of financial crime, according to “The State of Fraud and Financial Crime in the U.S.,” a PYMNTS and Featurespace collaboration.

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