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
Related Links
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
Related Articles
OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks
The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
