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Crypto: Federal regulators warn banks to beware of ‘significant’ risks surrounding crypto assets

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A trio of federal regulators issued a warning to banks Tuesday regarding crypto-asset risks.

In a joint statement, the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency said “it is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system.”

The document also highlighted a range of risks associated with crypto-assets and crypto-asset sector participants including: fraud and scams, inaccurate or misleading representations and disclosures by crypto-asset companies, and legal uncertainties related to custody practices, redemptions, and ownership rights, among others.

The agencies said that past year was marked by significant volatility and exposure to vulnerabilities in the crypto-asset sector, though it didn’t propose any new policies.

“Given the significant risks highlighted by recent failures of several large crypto-asset companies, the agencies continue to take a careful and cautious approach related to current or proposed crypto-asset-related activities and exposures at each banking organization,” the regulators said. The regulators said they have “significant safety and soundness concerns with business models that are concentrated in crypto-asset-related activities.”

The past year saw the collapse of crypto exchange FTX, which filed for bankruptcy in November. The cryptocurrency market also lost a total of $2 trillion since its peak in November of 2021. Popular nonfungible token art projects also saw significant drops in floor price after initial hype in late 2021 and early 2022. Victims of hacks and scandals lost upwards of $3 billion last year.

While crypto regulation has been a hot topic of discussion for the past couple of years, regulators still haven’t settled on what governing the sector looks like.

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