US Fed issues guidance for banks considering crypto activities

WASHINGTON: The US Federal Reserve Board has provided additional information for banking organizations engaging or seeking to engage in crypto-asset-related activities saying banks should notify the central bank prior to engaging in such assets.

The emerging crypto-asset sector presents potential opportunities to banking organizations, their customers, and the overall financial system, however, it may also pose risks related to safety and soundness, consumer protection, and financial stability.

The supervisory letter issued by the US central bank on Tuesday outlines the steps Board-supervised banks should take prior to engaging in crypto-asset-related activities, such as assessing whether such activities are legally permissible and determining whether any regulatory filings are required.

It added banks should have adequate systems and controls in place to conduct crypto-asset-related activities in a safe and sound manner prior to commencing such activities.

Crypto trade assumes relevance as various financial institutions and central banks also have been flagging concerns about the financial risks attached to the virtual currency trade, including cryptocurrency. This form of currency can potentially be used for various anti-social activities.

Indian central bank Reserve Bank of India Governor Shaktikanta Das recently said that cryptocurrencies are a clear danger and anything that derives value based on make-believe, without any underlying, is just speculation under a sophisticated name.

The nature and scale of crypto markets are evolving rapidly and if the current trends continue, they will pose risks to financial stability, European Central Bank had stated earlier.

It is important to note that the price of widely traded digital asset Bitcoin has dropped sharply from its all-time high over the past several months, turning investors poorer.

Most other prominent crypto-assets too have experienced steeper declines recently. The Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, will report to the G20 finance ministers and central bank governors in October on regulatory and supervisory aspects of stablecoins and other crypto-assets. It is working to ensure that crypto-assets are subject to robust regulation and supervision.

"Crypto-assets, including so-called stablecoins, are fast-evolving. The recent turmoil in crypto-asset markets highlights their intrinsic volatility, structural vulnerabilities and the issue of their increasing interconnectedness with the traditional financial system," the Financial Stability Board had said.