US Regulators Remind Banks to follow Risk Management Principles for Cryptocurrency-Related Activities

02/25/2023 21:17 • Metaverse & Beyond • 140 views

According to reports, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) said that enterprises have been told that they need to conduct careful risk assessment, but the latest statement is not in the process of formulating new policies. The new announcement released on Thursday aims to “remind banking organizations to apply the existing risk management principles when it comes to activities related to cryptocurrencies”. Banks should consider the “concentration and correlation” of the entire deposit and the potential liquidity risk. The company should also complete “strong due diligence and continuous monitoring” of all cryptocurrency activities. The regulator said that banks should not lend the deposits of cryptocurrency customers and should hold cash to support all deposits.

US institutions: banks should use cash to support deposits of cryptocurrency customers

Interpretation of the news:

The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) have recently reminded banking organizations to apply existing risk management principles when it comes to activities related to cryptocurrencies. While the latest announcement is not in the process of formulating new policies, banks are being urged to conduct careful risk assessment and scrutinize the concentration and correlation of the entire deposit and the potential liquidity risk.

The regulators emphasized the need for continuous monitoring and strong due diligence of all cryptocurrency activities. Banks are advised not to lend deposits of cryptocurrency customers and to hold cash to support all deposits. In other words, banks should highlight adequate liquidity and cash management practices along with proper risk management principles.

One of the main concerns for regulators when it comes to cryptocurrencies is the volatility of the digital asset, which can pose a risk to customers and banks. The reminder was released to prevent any additional cryptocurrency-associated loss due to a lack of proper risk management or the absence of appropriate cash reserves. The regulators emphasized the significance of each bank being aware of the potential risks, controls, and legal and compliance measures surrounding any cryptocurrency-related activities.

In conclusion, US regulators have called for banks to adopt proper risk management principles and fully scrutinize all cryptocurrency-related activities to ensure the stability of the financial market. The call for regulatory standards in cryptocurrency matters highlights an ongoing objective of mitigating potential risk factors and promoting stability. Moreover, this announcement aims to ensure that banks consider and manage any interconnected risk associated with digital assets, which requires a precise measurement framework and cross-border collaboration, highlighting the need for global regulatory alignment.

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