The Federal Reserve, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency recently issued a joint statement that expressed the agencies’ concerns with banks that have business dealings tied to digital assets, including cryptocurrency.
While the joint statement didn’t prohibit banks from getting involved, it highlights many of the risks while referencing the volatility that took place last year in the crypto industry. The regulators specifically noted that recent events “highlight a number of key risks associated with crypto-assets and crypto-asset sector participants that banking organizations should be aware of.”
The Digital Assets Advisory Team at Strategic Resource Management (SRM) views the statement as a shot across the bow to encourage the digital assets industry to clean up its act. There is opportunity, as many of the risks identified by the federal agencies can be addressed by the industry through the thoughtful, careful application of digital assets and related technologies.
Here are some other key takeaways:
Be mindful of the risks. While we believe digital assets and related technologies are the future of finance, they offer both opportunities and risks. Digital asset solutions must be implemented in a compliant fashion, with a dedicated focus on the due diligence of digital asset vendors, implementing good security protocols and risk management procedures, and providing customer education and clear disclosures.
Outside help is needed. Outside of a large institution like JPMorgan Chase – which has a department dedicated to investigating and implementing technologies, developing a sound digital asset strategy, picking the right partners, and applying compliant solutions – FIs will require the aid of independent, trusted experts.
Leverage a reputation of trust. For the past few years, banks and credit unions have been losing deposits and business to crypto exchanges, fintechs, brokerage companies, neobanks, and other digital asset solution providers. Given current market angst, there’s an immediate opportunity for traditional FIs to do this right and excel by remaining a reliable service provider for customers and members.
Continue to monitor agency communication. While regulators do not make laws, they do craft rules. How they define crypto assets will be very important. Will it include tokenized assets and stablecoins? What blockchains will provide them with comfort? Many questions remain unanswered.
We applaud the Federal Reserve, FDIC, and OCC for highlighting the risks. Now it’s time for the banking industry to get the technology and the processes right.