The FTX breakdown has created an atmosphere of doubt and fear among crypto investors. The crypto market is filled with uncertainty which is reflecting in crypto asset prices.
On January 3rd, 2023, United States Banking regulators alerted traditional banks about imminent crypto hacks, legal uncertainty, cyber scammers and misleading disclosures by crypto firms. After two months of FTX collapse, US regulators showed their concern for banking organizations in a joint statement on Crypto-Asset Risks.
The Federal Reserve, Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency said, “The events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector.”
To protect banks from potential risks, regulators have been trying to make rules and guidelines for the utilization of crypto assets over the past six months. Earlier in August, the US Federal Reserve requested that the banking organizations notify the Fed before dealing with crypto assets.
Regulators said that “It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system.”
In November, the Office of the Comptroller of the Currency said if the US-based traditional banks want to get involved in cryptocurrency, they have to get approval from the US central bank.
Comptroller Michael Hsu said, “Because many of these technologies and products present novel risks, banks must be able to demonstrate that they have appropriate risk management systems and controls in place to conduct them safely.”
Central Banks to set new crypto standards for banks
On December 16th, 2022, the Bank for International Settlements (BIS) released the Prudential Treatment of Crypto Asset exposure report. The committee agreed to implement new crypto standards for banks by January 2025.
The Basel Committee on Banking Supervision (BCBS) and the Group of Central Bank Governors and Heads of Supervision (GHOS) concluded on prudential standards on the bank’s crypto asset exposures and strategic priorities for 2023-24.
The report permits banks to hold 2% of their reserves in cryptocurrency from January 1st, 2025. After considering feedback from stakeholders, the committee finalized the introduction of the policy by 2025. In June, BIS only permitted a few banks to hold 1% reserves in the crypto industry.
The committee classified cryptocurrencies into two different groups: Tokenized traditional assets and crypto assets with effective stabilization mechanisms come under Group 1. Meanwhile, all unbacked crypto assets are in Group 2. And the total exposure limit of Group 2 crypto assets must be less than 1%.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2023/01/04/us-banking-regulators-alerted-banks-on-upcoming-potential-risks/