On November 23, 2021, a group of US Federal agencies issued a joint statement on how banks can get involved in the crypto sector. According to the joint statement, the regulators will clarify the role of US banks in the crypto sector in 2022.
Agencies Involved And Areas To be Addressed
The joint statement was issued by the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency. This statement is an update on the work undertaken by an interagency team formed at the start of 2021.
These agencies plan to address the expectation for soundness, safety, and consumer protection as well as compliance with existing laws and regulations. Some of the areas they will target are the facilitation of crypto purchases and sales, loans collateralized by crypto, and the issuance of stablecoins. They acknowledged that the emerging crypto industry presented opportunities and risks to the banking sector, their customers, and the financial system.
The statement noted that the interagency team had made a lot of progress. Its focus thus far had been:
- The development of common vocabulary and consistent terms when it comes to crypto assets and banking organizations
- Identifying the key risks, including those related to safety and soundness
- Analyzing applicability of existing regulation and identifying areas that could benefit from additional clarification.
They emphasized that the statement did not in any way alter existing rules and regulations created by federal agencies.
In a separate statement on the same day, the OCC clarified that financial institutions had to demonstrate they had proper controls in place before they could engage in the crypto sector. The clarification follows a July 2020 statement by the OCC, which gave the green light to US banks to offer crypto custody services.
The joint statement follows a report published by the President’s Working Group on Financial Markets, which called for urgent legislation to address potential risks posed by stablecoins. The report noted that well-designed stablecoins that were subject to appropriate oversight could offer major benefits. However, the absence of oversight posed a huge risk to users and the financial system. It noted that in the absence of legislation by Congress, regulators would continue to “operate within their mandates to address the risks of these assets.”
Lack Of Regulation Has Been A Major Impediment
While the OCC gave the green light for crypto custody services by US banks in 2020, the rollout of such services has been low. A major reason for this is the lack of regulatory clarity at the federal level. Due to the sensitive nature of the financial system, most banks are simply unwilling to take the risk posed by the lack of regulatory clarity.
Dealing in such an environment means that while one federal agency may okay a crypto investment, another agency may issue harsh fines or warnings. Currently, there seems to be a tug-of-war going on amongst US federal agencies that regulate crypto space.
The two main agencies that have taken legal actions against firms in the sector are the SEC and the CFTC. In some cases, companies who thought they were operating within the law have been forced to shut down their projects. A good example is the failed GRAM tokens ICO, which led to numerous legal challenges for the company behind it.
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