US Regulators Warn Banks of Crypto ‘Contagion Risk’ After FTX

[ad_1]

Federal banking regulators warned banks against investing in crypto this week, in what could be a prelude to more aggressive regulations to come.

The guidance comes after recent “failures by several major crypto-asset companies,” according to a press release from the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.

Without mentioning the recent implosion of crypto exchange FTX by name, regulators have said that due to poor oversight, crypto-asset firms pose a “contagion risk” for banks. They also cited other concerns, such as fraud or scams, legal uncertainties regarding custody of crypto assets, and misleading claims from crypto companies.

Is More Crypto Regulation On The Way?

While regulators have warned that “risk management and governance practices” in the crypto space lack “maturity and robustness,” they have refrained from announcing new rules or regulations for banks that invest in crypto. crypto assets. Nor did they discourage partnerships between banks and crypto companies.

The agencies said they would take a “cautious and cautious approach” to “crypto-asset related activities and exposures” at each bank.

“The statement is a bit concerning in terms of crypto risk, without any advice on how to deal with it,” says David Schwed, COO of blockchain security firm Halborn. “However, it shows that federal regulatory agencies are actively involved in helping to restore market stability.”

While the regulators’ warning “highlights many of the risks associated with digital assets,” Schwed believes it is “just a generalized high-level risk advisory.”

Following the collapse of FTX, the White House called for more regulation of cryptocurrencies, as did Kevin O’Leary, crypto enthusiast and celebrity investor.

There’s still a lot to do on the regulatory front, Schwed adds, but he doesn’t expect “anything drastic” this year.

The takeaway from the statement is that banks will need to be careful when considering investing in crypto assets, says Mina Tadru, CEO of investment firm Tadrus Capital.

“This warning could make more regulation of crypto investments more likely in the future,” Tadru says. These regulations could include increased reporting and capital requirements, as well as limits on the types of investments banks can make in crypto assets.

Sign up now: Manage your money and your career better with our weekly newsletter

Don’t Miss: Mark Cuban Still Believes in Crypto Despite FTX’s CollapseHere’s Why

[ad_2]