US Fed Issues Guidance for Banks Considering Crypto Activities

The Federal Reserve Board provided additional information for banking organizations engaging or seeking to engage in crypto-asset-related activities.

The emerging crypto-asset sector presents potential opportunities to banking organizations, their customers, and the overall financial system. However, crypto-asset-related activities may also pose risks related to safety and soundness, consumer protection, and financial stability.

The supervisory letter issued today outlines the steps Board-supervised banks should take prior to engaging in crypto-asset-related activities, such as assessing whether such activities are legally permissible and determining whether any regulatory filings are required. Additionally, the supervisory letter states that Board-supervised banking organizations should notify the Board prior to engaging in crypto-asset-related activities.

The supervisory letter also emphasizes that Board-supervised banking organizations should have adequate systems and controls in place to conduct crypto-asset-related activities in a safe and sound manner prior to commencing such activities.

The Board, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation previously released an interagency statement regarding their crypto-asset policy initiative last year.

Crypto trade assumes relevance as various financial institutions and central banks have been flagging concerns about the financial risks attached to the virtual currency trade, including cryptocurrency. This form of currency can potentially be used for various anti-social activities.

For instance, Indian central bank Reserve, Bank of India Governor Shaktikanta Das, recently mentioned that cryptocurrencies are a clear danger and anything that derives value based on make-believe, without any underlying, is just speculation under a sophisticated name.

Also, the European Central Bank, stated that the nature and scale of crypto markets are evolving rapidly and if the current trends continue, they will pose risks to financial stability.

This being said, the Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, will report to the G20 finance ministers and central bank governors in October on regulatory and supervisory aspects of stablecoins and other crypto-assets. It is working to ensure that crypto-assets are subject to robust regulation and supervision, according to NDTV Profit.

"Crypto-assets, including so-called stablecoins, are fast-evolving. The recent turmoil in crypto-asset markets highlights their intrinsic volatility, structural vulnerabilities and the issue of their increasing interconnectedness with the traditional financial system," the Financial Stability Board explained.