Fed, FDIC, and OCC Issue Stern Warning on Cryptocurrency Risks

Banking regulators, including the Federal Reserve (Fed), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), issued a new warning to financial institutions Tuesday regarding the inherent risks they face when engaging with cryptocurrency. This cautionary notice follows a period of significant instability within the crypto market and aims to safeguard the stability of the financial system.

These events highlight a number of key risks associated with crypto-assets and crypto-asset sector participants that banking organizations should be aware of, including the significant risk of fraud. The agencies are urging banks to exercise extreme caution and conduct thorough due diligence before participating in any crypto-related activities.

In a related move, The Board and FDIC withdrew their Jan. 3, 2025, joint statement that identified risks associated with the crypto-asset sector and expressed safety and soundness concerns. This withdrawal clarifies the regulatory landscape, but does not diminish the agencies’ concerns regarding crypto-asset-related activities. The agencies have also withdrawn two joint statements regarding banking organizations’ crypto-asset-related activities.

The warning emphasizes that banks need to understand and mitigate potential risks, including liquidity risk, operational risk, and cybersecurity threats. Financial institutions are expected to have robust risk management systems in place to monitor and control their exposure to crypto-assets.

This regulatory scrutiny underscores the ongoing challenges and uncertainties surrounding cryptocurrency, urging banks to proceed with caution and prioritize consumer protection.