Washington:

Risks such as fraud and scams, legal uncertainties, inaccurate or misleading representations and disclosures, and volatility is associated with crypto-assets and the participants and banking organizations should be aware of them, the US regulators warned in a joint statement.

The Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued the joint statement on Tuesday (local time).

The joint statement, the first of its kind, also termed contagion risk within the crypto-asset sector, which may result from interconnections among certain crypto-asset participants as one of the concerns.

“It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system,” the joint statement by the US regulators said.

The dramatic collapse of the trading platform FTX in 2022 has led to concern among regulators. Cryptocurrency involves risks and volatility but the market has attracted traders and investors looking to make quick profits.

FTX was a high-profile crypto exchange and collapsed in November due to reported misappropriation of customer funds.

“The agencies are supervising banking organizations that may be exposed to risks stemming from the crypto-asset sector and carefully reviewing any proposals from banking organizations to engage in activities that involve crypto-assets,” the statement said.

Given the significant risks which got highlighted by the recent failures of several large crypto-asset companies, the statement said agencies continue to take a careful and cautious approach related to current or proposed crypto-asset-related activities and exposures at each banking organization.

However, it said banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.

“Banking organizations should ensure appropriate risk management, including board oversight, policies, procedures, risk assessments, controls, gates and guardrails, and monitoring, to effectively identify and manage risks,” it noted.

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