Law Firm Cautions Banks on Providing Crypto Services Following Bank Regulators Statement

Earlier today, the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and the Board of Governors of the US Federal Reserve made the interesting move to jointly issue a statement cautioning banks about working with crypto firms. The joint statement said that banks are NOT prohibited Nor discouraged from providing services to customers of any asset class as permitted by law.

At the same time, the regulators indicated they were still reviewing how crypto activities can interact with banks, adding that “issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices.”

The regulators stated there are “significant safety and soundness concerns” regarding crypto.

The statement arrives following a devastating year for the crypto industry that endured multiple bankruptcies and allegations of fraud. The collapse of FTX, Alameda Research, and affiliated entities – may have been the straw that broke the camel’s back. The Feds are rattling the cages of regulated banks.

CI received a comment on the joint statement from the global law firm of Dorsey & Whitney on the warnings. Joseph Lynyak III, a partner at the firm, stated:

“Once again the federal banking regulators have warned the industry of the inherent risk presented by dealing in the crypto market. While not prohibiting a bank from doing so, the agencies have reiterated that prior concurrence from the prudential regulators is necessary prior to performing an activity that relates to cryptocurrency (and probably blockchain). Importantly, the agencies have warned that the failure to have approvable risk management will be deemed to be engaging in an activity not permissible for a banking institution (and in the minimum, may constitute an unsafe and unsound practice).”

So banks should have regulatory approval prior to providing services to crypto firms. In the current environment, the statement may chill the interest of banks already providing services. At the same time, it may cause banks considering providing services to crypto firms to hit the pause button.

Joint Statement on Crypto-Asset Risks to Banking Organizations 

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