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A disastrous year for cryptocurrencies culminated in the infamous collapse of the failed FTX exchange in November 2022.
FTX’s rapid decline has had a devastating effect on the entire crypto sector, leading to several other bankruptcies.
Former FTX CEO Sam Bankman-Fried was set to plead not guilty to fraud and other charges on Jan. 3 after a series of revelations and legal action.
Three federal agencies (the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency) also issued a joint public statement on January 3 warning banks of the risks of cryptocurrencies.
In general, cryptocurrencies were already tainted by speculation that they were often used by criminals for illegal purposes such as money laundering, fraud, human trafficking, and drug trafficking.
A European Central Bank blog post claims that Bitcoin will (~ BTCUSD) It was a currency for malicious activity.
“Bitcoin’s conceptual design and technical shortcomings have led it to be questioned as a means of payment. Actual Bitcoin transactions are cumbersome, time-consuming, and expensive. It hasn’t been used much for trading,” the blog post said.
Coinbase Settles With New York Regulators
In connection with accusations of cryptocurrency misuse, US exchange Coinbase Global (coin) – Get Free Report It is under investigation by the New York State Department of Financial Services and settled on January 4 for $100 million.
Half of that amount is fines, and the remaining $50 million will be used by Coinbase to improve its compliance practices.
Financial services chief Adrienne A. Harris announced the settlement in a press release, saying Coinbase’s compliance program failure violated New York laws and regulations.
The agency said the Coinbase platform had become vulnerable to serious criminal activity. According to the press release, this includes fraud, money laundering, suspected child sexual abuse activities, and possible drug trafficking.
“It is critical that all financial institutions protect their systems from malicious actors, and Treasury Department expectations regarding consumer protection, cybersecurity, and anti-money laundering programs are similar to those of traditional financial services institutions. It’s tough on businesses, too,” Harris said.
“Coinbase has failed to build and maintain a functioning compliance program that can accommodate its growth,” she continued. “This failure exposed the Coinbase platform to potential criminal activity and required the Department of State to take immediate action, including the establishment of an independent observer.”
The risks federal agencies see in banks
The January 3 statement from the Federal Reserve, FDIC, and OCC warning banks of the risks pointed to the difficulties experienced by the cryptocurrency sector. The statement lists some major risks associated with crypto assets.
These dangers were demonstrated by the volatility and vulnerability of 2022, it said. Below is a list of risks highlighted in the statement.
- Fraud and fraud risks among participants in the crypto sector.
- legal uncertainties related to custodial practices, redemption and ownership; Some of which are currently subject to legal proceedings and proceedings.
- Inaccurate or misleading representations and disclosures by the Crypto Asset Company. This includes making false representations about Federal Deposit Insurance and other practices that may be unfair, deceptive, or abusive, and which pose a serious threat to individual and institutional investors, customers, and counterparties. Doing so may cause damage.
- Significant volatility in the cryptocurrency market. The implications include potential impacts on deposit flows associated with cryptocurrency companies.
- Stablecoins can take risks, causing potential deposit outflows for banking organizations holding stablecoin reserves.
- Contagion risk within the crypto sector due to interconnections between certain crypto participants, including opaque lending, investments, financing, services and operational arrangements. These interconnections may also pose concentration risks to banking organizations with exposure to the crypto sector.
- Risk management and governance practices in the crypto sector showing a lack of maturity and robustness.
- Increased risks associated with open, public, and/or decentralized networks or similar systems, including but not limited to lack of governance mechanisms to establish oversight of the system; clearly establishing roles, responsibilities and duties lack of contract or standard for Vulnerabilities related to cyberattacks, outages, loss or entrapment of assets, and fraudulent financial practices.
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