Regulators across the globe have been opting to aptly monitor the crypto sector to protect the best interest of investors. Recently, the financial regulators in the United States have stated their approach to the crypto sector.
`This move from the regulators comes in response to the major downfall events last year, like the collapse of big-shot firms, including FTX, Three Arrow Capitals, LUNA, and various other crypto-lending firms.
Further, the announcement mentions that regulatory bodies will neither prohibit nor discourage the banking organizations if they desire to engage with the crypto sector. However, the regulators would be very close and sincerely monitoring these banks that engage with crypto.
With the increasing popularity of crypto, several notable American banks have started to indulge in providing services related to cryptocurrencies.
In April last year, Goldman Sachs, an American investment banking company, created a Bitcoin-backed cash loan product. In October, the Bank of New York Mellon, the world’s largest custody bank, announced its plan to provide custody service for crypto assets.
The regulators intend to ensure that the crypto-related activities executed by banks must be protected with safe and sound banking practices. In addition, the crypto services provided by these banks must also comply with consumer protection, legal permissibility, and other applicable laws and regulations.
According to the regulators’ statement, the banking institutions under strict monitoring would prevent inconsistencies. The statement read:
“The agencies believe that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network or similar system is highly likely inconsistent with safe and sound banking practices.”
There are contrasting opinions in relevance to the banking firms adopting decentralization. While one section expects to witness mass de-risking of blockchain-related companies by banks, others believe institutions would work out a safe and proper mechanism to ensure investors’ protection.
The OCC had previously also warned banks of the emerging risks in the crypto sector in its report called the Semiannual Risk Perspective for Fall 2022. The report highlighted “several key risks” of the crypto sector, citing various “dislocations” existing in the market over the past year. It also said that the sector should maintain a “cautious approach” and seek permission when engaging with crypto or crypto firms in relevant cases.