U.S. federal regulators issue a joint statement on crypto asset risks for banking organizations.

Major U.S. regulatory agencies – including 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) – have issued a joint warning statement on the risks of crypto assets to financial institutions.

According to the announcement, events in the crypto-currency market over the past year have highlighted the risks associated with digital assets for banking organizations.

After the market reached its ATH in the fourth quarter of 2021, nearly the entire crypto market was trapped in a multi-week bear market. The fallout from Terra Luna, the $600 million Ronin Bridge attack, and the FTX implosion were among the things attributed to the increased risks associated with crypto assets.

As a result, banks offering crypto-currency custody and lending services have been significantly impacted by the current crypto-currency bear market and blockchain attacks. As such, global regulators are concerned about the tokenomics of crypto projects, which favors founders over customers.

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Federal authorities are issuing warnings to banking organizations that deal with crypto-currency assets.

The joint statement from U.S. regulators is consistent with Joe Biden’s directive on the healthy adoption of blockchain technology and digital assets. In addition, the Biden administration issued an executive order on crypto-currencies last year, which was passed unanimously by Congress.

In an effort to clean up the crypto-currency market, joint federal regulators are concerned about the legal gray area in which crypto assets operate. In addition, most crypto-currency projects are developed on public ledgers without a legal framework to protect users.

Nevertheless, the joint statement notes that banks are not prohibited from offering custody or lending services.

Banking organizations are neither prohibited nor discouraged from providing banking services to customers of a specific class or type as permitted by law or regulation“, states the joint statement reads as follows:.

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Notably, U.S. regulatory agencies are concerned about the high volatility of crypto, which exposes banks to unwarranted operational risks. In addition, the agencies pointed to inaccuracies in crypto projects, which in turn yield misleading data.

The Agencies continue to evaluate whether or how current and proposed crypto-asset activities by banking organizations can be conducted in a manner that adequately addresses safety and soundness, consumer protection, legal legality, and compliance with applicable laws and regulations, including anti-money laundering and anti-illegal financing laws and rules“, the report notes.

The agencies also highlighted the challenges associated with stablecoins and the ability of banking organizations to enact appropriate reserves. In addition, most blockchains where stablecoins operate have unregulated governance, which can end up putting banks at risk from bad actors.

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