Banking Agencies Issue Joint Statement on Crypto Risks

On January 3, 2023, U.S. banking regulatory agencies (including the Federal Reserve, FDIC and OCC) released their first-ever joint statement on crypto-asset risks to banking organizations. Prepared after a year of “significant volatility and the exposure of vulnerabilities in the crypto-asset sector,” the statement emphasized the cautious approach regulators plan to take with crypto-asset activities and the banking sector.

Specific areas of risk identified by regulatory agencies include:

• Fraud
• Legal uncertainty
• Inaccurate or misleading representations by crypto-asset companies
• Significant volatility in crypto-asset markets
• Susceptibility of stablecoins to run risks
• Contagion risk within the crypto-asset sector
• Risk management practices in the crypto-asset sector lacking maturity or robustness
• Heightened risks associated with open, public, or decentralized networks

Banking organizations are not prohibited or discouraged by agencies from providing services to customers of any specific class or type that are permitted by law and regulation. However, the agencies state, “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. Further, the agencies have significant safety and soundness concerns with business models that are concentrated in crypto-asset-related activities or have concentrated exposures to the crypto-asset sector.”

This statement emphasizes the need for banking organizations to understand every aspect of their involvement with crypto-asset activities and entities, thoroughly assess risks and risk management practices, and ensure that any crypto-asset activities are conducted in a safe and sound manner and are compliant with applicable laws and regulations.

Through our banking services and blockchain and digital asset (BDA) practices, Weaver can help financial institutions and crypto-asset organizations assess risks, assess proof of reserves and liabilities, evaluate and meet audit and compliance requirements associated with crypto-asset activities, and develop processes and controls necessary for a strong risk management environment. Contact us for assistance.

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