WASHINGTON (AFP): US bank regulators warned Tuesday that crypto assets and exposure present risks to lenders, urging organizations to ensure they manage the dangers.
The joint statement comes after the sudden collapse of cryptocurrency platform FTX — worth $32 billion before it filed for bankruptcy in November — which sent chills across the sector.
FTX’s disgraced founder Sam Bankman-Fried has since been accused of committing one of the biggest financial frauds in US history, sparking calls for greater oversight.
“It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system,” said the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency.
They added in a joint statement that events of the past year “have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector.”
Banking organizations should be aware of risks such as fraud and scams, along with inaccurate or misleading disclosures, the agencies said.
There is also “significant volatility” in crypto-asset markets, and contagion risk in the sector due to connections between parties — including through opaque lending, investing or funding.
The watchdogs said they continue to take a “careful and cautious approach” with crypto activities and exposure at banking organizations.
Meanwhile, lenders should “ensure appropriate risk management” such as board oversight and guardrails to identify and manage threats, the statement said.
FTX’s implosion was swift following a November 2 media report on ties between it and Alameda, a trading company also controlled by Bankman-Fried.
The report exposed that Alameda’s balance sheet was heavily built on the FTT currency — a token created by FTX with no independent value — and exposed Bankman-Fried’s companies as being dangerously interlinked.