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January 3, 2023, Regulator. Agencies including the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the General Accounting Office have released a joint statement on crypto asset risk to banking organizations. Regulators want to ensure that banking organizations understand that risks associated with the crypto sector that they cannot mitigate or control will not migrate into the banking system. 2022. All banking organizations participating in the crypto-asset ecosystem must assess their interactions with crypto-assets that could create risks and threaten U.S. financial stability
Banking organizations are not prohibited or dissuaded from providing banking services to certain classes or types of customers (including virtual currencies) as permitted by law or regulation, although regulators currently and the proposed cryptocurrency-related banking organization activities may be conducted in a manner that adequately addresses:
- safety and health
- consumer protection
- legally permissible
- Comply with applicable laws and regulations, including anti-money laundering and illicit finance laws and regulations;
Regulators want banking organizations to recognize:
- Fraud and fraud risks among participants in the crypto sector.
- Legal uncertainties related to custody 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 regarding Federal Deposit Insurance and other practices that may be unfair, deceptive, or abusive, and which may pose a serious threat to individual and institutional investors, customers, or 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, investment, financing, servicing and operational arrangements. These interconnections can 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.
Note: Regulators continue to closely monitor crypto-related exposures of banking organizations
The joint statement said each regulator has developed a process for banking organizations to engage in strong supervisory discussions regarding proposed and existing crypto-related activities to ensure that crypto-related activities can be carried out. says.
- in a safe and sound manner,
- legally permitted,
- Comply with applicable laws and regulations, including those designed to protect consumers, such as fair lending laws and prohibitions on unfair, fraudulent, or abusive conduct or practices.
In short, “banking organizations need to ensure adequate risk management, including board oversight, policies, procedures, risk assessments, controls, gates and guardrails, and oversight, in order to effectively identify and manage risks.” there is.”
Does your banking organization have Crypto Exposure?
Who is your Corporate Governance Advisor?
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