Federal regulators warn banks on crypto: Be cautious

Because the cryptocurrency alternate FTX collapsed late final yr, requires regulation of the business have been getting a lot louder.

Congress has talked about it rather a lot, however in its present state of division, laws isn’t possible. That leaves checking out what to do to federal regulatory companies.

On Thursday, three of them bought collectively and put out a statement warning banks to be careful about including an excessive amount of cryptocurrency to their stability sheets. That is the second statement on crypto in as many months from the Federal Reserve, the Federal Deposit Insurance coverage Corp. and the Workplace of the Comptroller of the Forex.

“The bank regulators are focused on the interconnections between crypto and traditional banks,” mentioned Timothy Massad, director of the Digital Assets Policy Project at Harvard and former chair of the Commodity Futures Buying and selling Fee. “And they have wanted to limit those so as to protect the traditional banking system.”

These limits are the rationale regulators consider the FTX fiasco didn’t trigger extra harm to the financial system, he mentioned.

Now, the companies are highlighting liquidity dangers in relation to crypto. However none of that is technically new regulation of crypto, in response to Ananya Kumar, who tracks cryptocurrency regulation globally on the Atlantic Council.

“So the way that these agencies are engaging in this is through their supervisory capacity as regulators of traditional financial institutions, not as regulators of crypto,” she mentioned.

It’s unclear simply who can regulate the crypto business. The Securities and Alternate Fee? The Commodity Futures Buying and selling Fee?

“When we talk about some of the other agencies, namely the SEC and the CFTC, in this space, we know that there’s an ongoing turf war,” Kumar mentioned.

Banking regulators don’t have that drawback, mentioned Jarrod Loadholt, who works on crypto points on the legislation agency Ice Miller.

“There are very clearly defined lines of who does what between the FDIC, the OCC and the Federal Reserve,” he mentioned.

They aren’t saying banks can’t or shouldn’t get into crypto, however they’re saying, in unison, what many specialists have been telling customers: Simply watch out.

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