U.S. Regulators Warn Banks Against Using Crypto, Claim It’s Not ‘Safe and Sound’

The U.S. Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a joint statement warning banks of risks associated with cryptocurrencies.

American regulators said banks should be aware of the multiple crypto risks like fraud, legal uncertainties, inaccurate disclosures by crypto companies, market volatility, stablecoin and contagion risks, and others.

Banks should be extra careful when dealing with crypto-related companies to prevent risks that “cannot be mitigated or controlled [from migrating] to the banking system,” the statement said. The regulators alluded to the recent blow-up of the second-largest crypto exchange FTX as a reason for taking a cautious approach to crypto.

“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,” they said.

The regulators also said issuing or holding crypto assets is “highly likely inconsistent with safe and sound banking practices.”

“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 statement said.

They added that they have “significant safety and soundness concerns” about crypto-related companies and activities.

Their statement comes after years of inability to provide a clear regulatory framework for the cryptocurrency industry. Coinbase CEO Brian Armstrong and others have argued that the hesitancy of U.S. regulators to introduce regulation in crypto markets has caused the FTX phenomenon.

Over the last year, cryptocurrency has played a bigger role in financial markets worldwide. While the recent developments in the crypto industry have no doubt been a huge reputational hit, the underlying technology is still seen by many as superior to how the traditional banking system works.