US Agencies Issue Statement on Crypto-Asset Risks for Banks
The Board of Governors of the Federal Reserve System (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (hereafter, the agencies) issued a joint statement on crypto-asset risks to banking organizations. Additionally, the U.S. Senator Pat Toomey, a member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs introduced a draft legislation, or the Stablecoin Transparency of Reserves and Uniform Safe Transactions (TRUST) Act of 2022, to guide the future stablecoin regulation.
The joint statement on crypto-asset risks highlights several key risks associated with crypto-assets, including risk of fraud, legal uncertainties related to custody practices and ownership rights, misleading representations and disclosures by crypto-asset companies, volatility risk in crypto-asset markets, susceptibility of stablecoins, and risk management and governance practices in the crypto-asset sector, among others. The agencies are of the view 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 to be inconsistent with safe and sound banking practices. The agencies note significant safety and soundness concerns with business models that are concentrated in crypto-asset-related activities or have concentrated exposures to the crypto-asset sector. The statement also describes the approach agencies should take in the supervision of crypto-asset sector. Going forward, the agencies will continue to closely monitor crypto-asset-related exposures of banking organizations and assess whether or how current and proposed crypto-asset-related activities by banking organizations can be conducted in a manner that adequately addresses safety and soundness, consumer protection, legal permissibility, and compliance with applicable laws and regulations, including anti-money laundering and illicit finance statutes and rules. The statement applies to financial institutions that intend to engage in, or that are engaged in, any activities involving or related to crypto-assets.
The recently introduced draft Stablecoin TRUST Act of 2022 is intended to establish the first federal regulatory framework for payment stablecoins and guide Congress toward a path for sensible regulation of cryptocurrencies. The purpose is to provide a regulatory framework and consumer protection for the issuance of payment stablecoins and for other purposes. The Stablecoin TRUST Act recognizes the wide range of payments innovation occurring at the state level and avoids the regulatory conflict of interest that could emerge if the Federal Reserve, which may be authorized to issue a central bank digital currency, were to have unchecked power over stablecoins. The key components of Stablecoin Trust Act are as follows:
- Encourage competition by authorizing several types of regulated entities to issue payment stablecoins
- Enhance financial stability by requiring that all payment stablecoins are fully backed by high-quality liquid assets
- Establish transparency by subjecting all payment stablecoin issuers to standardized disclosure requirements and attestations by registered accounting firms
- Provide clarity that, at a minimum, stablecoins that do not offer interest are not securities
- Protect consumers by clarifying that payment stablecoin holders would have priority in the event of an issuer’s insolvency
- Restore privacy protections to financial transactions involving stablecoins and other digital assets
- Preserve and build upon the state-based regimes under which existing stablecoins are issued and regulated
- Authorize OCC to establish a new federal license designed specifically for payment stablecoin issuers
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Keywords: Americas, US, Banking, Securities, Cryptoassets, Stablecoins, Regtech, Exposures, ML TF Risk, Stablecoin Trust Act, Central Bank Digital Currency, Financial Stability, OCC, FDIC, FED, US Agencies, US Senate Banking Committee
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