The US Board of Governors of the Federal Reserve System (FRB), Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) (the “Agencies”) today issued a joint statement reiterating their ongoing concerns with crypto-asset activities entering the banking sector. See: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20230103a1.pdf
The risks noted in the statement are familiar to anyone who has worked in this space. They include:
- Risk of fraud and scams;
- Significant volatility in crypto-asset market;
- Contagion risks from interconnected crypto-activities;
- Legal uncertainties; and
- The susceptibility of stablecoins to run risk.
Although the Agencies state that banking organizations are “neither prohibited nor discouraged” from providing banking services to any specific type of client, they stated that banks issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network are “highly likely to be inconsistent with safe and sound banking practices”. This effectively means that a bank cannot engage in such activities. The Agencies also expressed a high degree of concern about banking business models that are concentrated in crypto activities or that create a concentrated exposure to the crypto-asset sector.
There are considerable fears that this statement will lead to a further wave of “derisking” by banks, which will directly impact on correspondent banking relationships. There is also speculation that state banking regulators may follow suit and issue a similar statement shortly.
Cryptocurrency companies may wish to closely examine their banking relationships and the contracts that govern those relationships, jointly with their legal counsel, to assess how the Agencies’ statement may impact their ongoing businesses and what steps may be taken to secure their banking relationships in the future.