Regulators in the United States have issued a fresh warning to financial institutions about taking caution before investing in cryptocurrencies. The warning comes two months after the collapse of the defunct FTX exchange which sent fear and shock into the crypto and broader financial industry.
A joint statement was released by three renowned agencies namely the Federal Reserve Bank, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) about the risks associated with crypto assets when used by banking institutions.
The agencies highlighted some risks in the released document that banks should be aware of and mitigate in order to avoid future occurrences similar to the implosion that occurred in the defunct FTX exchange.
Some risks highlighted include contagion risk within the crypto-asset sector as a result of interconnections among certain crypto-asset participants, fraud and cybercrime risks, the volatility of the crypto market, and increased levels of risk associated with using open, public, and decentralized networks.
The agencies also hinted that they have already begun monitoring banks that may be vulnerable to threats from the crypto-asset industry, as well as carefully scrutinizing any requests from banks to engage in crypto-asset-related operations.
The agencies also stated that banks are not prohibited from providing crypto services to their customers, but that they want to ensure that banking services are conducted in a safe, customer-protective, and anti-money laundering manner.
Banking Institutions Making Wave in the Crypto Industry
There are a number of banking institutions that are involved in the cryptocurrency space including JPMorgan and Goldman Sachs amongst others. It is worth noting that the regulatory landscape for cryptocurrencies is still evolving, so the availability of banking services for cryptocurrency companies may vary from jurisdiction to jurisdiction.
In December 2022, Sumitomo Mitsui Banking Corporation Group (SMBC), a global Japanese bank, announced a collaboration with HashPort Group to test the use of Soulbound tokens (SBT) for identity verification.
According to the fundamental understanding reached between SMBC and HashPort, the SMBC Group will start the first phase of testing by issuing SBT on a trial basis while obtaining technical support from the HashPort group. The testing phase is expected to go through the end of March 2023.
The State Bank of Pakistan (SBP), the country’s central bank, also announced that it was polishing a plan to start creating digital currency in 2025 to increase financial inclusion, reduce inefficiencies, and combat corruption
