Banks should take a cautious approach in digital asset markets, including discussing any new plans with regulators, a US banking official has said, noting the ongoing turmoil among cryptocurrency firms.
Risk management in the crypto industry lacks maturity, and some industry practices mean problems at one company could spill over to others, the Office of the Comptroller of the Currency said Thursday.
โMost crypto market participants seem unprepared for the stress and surprises that have taken place this year, resulting in substantial losses for millions of consumers,โ the OCC said in a report.
Noting recent "dislocations" in crypto markets, the regulator said banks should take "a careful and incremental approach" to ensure proper risk management practices are in place before engaging with digital assets or expanding existing business.
The OCC also advised national banks to discuss with regulators any plans to engage in digital assets and potentially seek authorization for some activities.
Crypto news has been dominated in recent weeks by the implosion of FTX, which until its bankruptcy in November was one of the largest cryptocurrency exchanges in the world. FTX founder Sam Bankman-Fried has said that he spent without time or effort trying to manage risk on the exchange, saying the crash could have been avoided if he had spent an hour a day thinking about risk management.
Mr Bankman-Fried has also said that could not explain what happened to the billions of dollars FTX customers sent to their trading company bank accounts.
The OCC in its advisory said that the risk of contagion in the crypto industry was high due to the interconnection between certain crypto industry players through โopaque lending and investment agreements.โ
The OCC's call for a precautionary approach by financial institutions comes as various agencies grapple with how digital assets might fit into a regulatory system built for traditional finance.
The OCC itself pointed out the risks of cryptocurrencies less than six months ago, but also said that cryptocurrency products and services could "create opportunities for banks and their customers." He did not mention crypto opportunities in Thursday's report.
The New York State Department of Financial Services, a major state-level regulator because of its influence over Wall Street institutions, said last week that it intended to add staff to its virtual currency regulatory team, but emphasized that his licensing system had helped him. hold businesses to high standards.
The Securities and Exchange Commission, which has yet to sue a major cryptocurrency exchange, is also facing pressure to intensify its application. Two former chairmen of the Securities and Exchange Commission and the Commodity Futures Trading Commission have also jointly called for stronger regulation.
Write Richard Vanderford at Richard.Vanderford@wsj.com
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