FDIC writes to banks on risks associated with crypto activities

FDIC writes to banks on risks associated with crypto activities
The Federal Deposit Insurance Corporation (FDIC) of the United States has written to the banks it regulates, expressing worry about the risks associated with crypto activities and how it affects consumer protection.
FDIC writes to banks on risks associated with crypto activities
FDIC writes to banks on risks associated with crypto activities

“Crypto-related activities may pose major safety and soundness hazards, as well as concerns about financial stability and consumer protection.”

Furthermore, because crypto-related activities are not yet completely understood, these risks and concerns are developing,” the FDIC wrote in a letter published Wednesday.

The Federal Deposit Insurance Corporation (FDIC) is a government body that insures savings and commercial banks in the United States. If a bank is unable to pay its debts, the FDIC can assist in covering depositor losses. As of 2021, there are almost 5,000 FDIC-insured institutions.

In a letter to all supervised institutions, the agency asks them to alert the regulator if they plan to engage in crypto-related activity.

These institutions are also expected to “present all essential information that would allow the FDIC to engage with the institution regarding related risks” when they declare their intent.

The FDIC went on to give a description of the crypto-related hazards it has found.

Some risks associated with cryptocurrency according to FDIC

Many crypto-related issues were cited by the agency, ranging from security and financial stability to consumer protection and financial criminality.

Crypto-related activities provide “new, heightened, or unusual credit, liquidity, market, pricing, and operational risks that could cause safety and soundness problems,” according to the FDIC’s letter. to

Financial criminality is also mentioned explicitly in the same section. The letter reads, “There are significant anti-money laundering/counter-terrorist financing implications and concerns associated to crypto assets, including reported cases of crypto assets being utilized for illegal operations.”

The FDIC is also concerned about the potential for the cryptocurrency market to pose systemic hazards to the financial system as a whole.

“A ‘run’ on financial assets backing a crypto asset or crypto-related activity might result from a disruption in crypto-asset transactions or crypto-related activities,” the FDIC warned.

Finally, the letter raises consumer protection issues.

“The FDIC is concerned about the possibility of consumer confusion about crypto assets offered by, via, or in connection with insured depository institutions,” according to the regulator. “Consumers may not grasp the bank’s position or the speculative character of certain crypto assets.”


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