Banks should be wary of crypto, says top US regulator

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Banks should take a cautious approach to digital asset markets, including discussing any new projects with regulators, a leading U.S. banking authority has said, highlighting the current turmoil among crypto firms.

The crypto industry’s risk management lacks maturity, and some industry practices mean problems at one company could spread to others, the Office of the Comptroller of the Currency said Thursday.

Most crypto market players seem unprepared for the strains and surprises that have taken place this year, resulting in substantial losses for millions of consumers, the OCC said in a report.

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Noting the recent turmoil in the crypto markets, the regulator said banks should take a careful and step-by-step approach to ensure appropriate risk management practices are in place before engaging with digital assets or to expand their existing activities.

The OCC also advised national banks to discuss with regulators any plans to engage in digital assets and possibly seek permission for certain activities.

Crypto news has been dominated in recent weeks by the implosion of FTX, which until its failure in November was one of the largest cryptocurrency exchanges in the world. FTX founder Sam Bankman-Fried said he had spent no time or effort trying to manage risk on the exchange, saying the crash could have been avoided if he had spent no- what an hour a day thinking about risk management.

Mr. Bankman-Fried also said he could not explain what happened to the billions of dollars that FTX customers sent to the bank accounts of his trading companies.

The OCC, in its advisory, said that the risk of contagion in the crypto industry is high due to the interconnection between some crypto industry players through loan and credit agreements. investment opaque.

SCOs are calling for a cautious approach from financial institutions as various agencies ponder how digital assets might fit into a regulatory system designed for traditional finance.

The OCC itself noted less than six months ago the risks of crypto, but also said crypto products and services could create opportunities for banks and their customers. He did not mention crypto opportunities in Thursday’s report.

The New York State Department of Financial Services, an important state-level regulator due to its influence over Wall Street institutions, said last week that it intended to add staff to its virtual currency regulatory team, but pointed out that its licensing system has helped. hold businesses to high standards.

The Securities and Exchange Commission, which has yet to sue a major crypto exchange, is also facing pressure to strengthen its enforcement. Two former chairmen of the Securities and Exchange Commission and the Commodity Futures Trading Commission have also jointly called for tougher regulation.

Write to Richard Vanderford at [email protected]

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