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Regulators' 'Policy Sprint' Looks at How to Handle Crypto on Balance Sheets

Federal regulatory agencies released new guidance with respect to the banking industry’s nascent role in managing crypto assets.

cryptocurrency 3409725 1920The newly minted guidance comes in the wake of a number of “policy sprints” conducted by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

According to the agencies, the guidance aims to provide “greater clarity throughout 2022 on whether certain crypto-related activities conducted by banking organizations are legally permissible.” The agencies also issued fresh direction with respect to consumer protection, compliance regulation and other financial safety considerations.

“The emerging crypto-asset sector presents potential opportunities and risks to banking organizations, their customers, and the overall financial system. The interagency sprints quickly advanced and built on agencies’ combined knowledge, which helped identify and assess key issues related to potential crypto-asset activities conducted by banking organizations,” according to the currency comptroller’s office.

According to Blockdata, a majority of the world’s top banks are engaging in crypto and blockchain-related investments. Of the top 100 banks measured by “assets under management,” 55 of those banks had invested in blockchain-adjacent companies or cryptocurrency.

The investments were made either directly or through some form of a subsidiary, notes the insights firm. According to the data, the most active of those banks with respect to asset investment are Barclays, Citigroup, Goldman Sachs, J.P. Morgan Chase and BNP Paribas.

From Twitter

CryptoLaw @CryptoLawUS

"JUST ANNOUNCED: December 8 at 10:00 AM ET: U.S. House Financial services Cmte Hearing: “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States. https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=408700"

According to the statement, the regulatory agencies are hopeful that by providing coordinated clarity now, they will be able to address shortfalls related to the growing crypto-asset sector while also leveraging new opportunities in the space. Some of the challenges facing the industry include illicit financing and money laundering, among others, reads the statement.

Other areas of focus in the guidance include:

  • Creating a shared vocabulary that uses consistent terminology with respect to crypto assets held by banking organizations.
  • Assessing critical risks related to consumer protection, sound financial practices and other legal and compliance considerations.
  • Analyzing existing regulations and identifying areas that might benefit from extra clarification.

Agency staff were able to assess the banking industry’s status by reviewing asset custody, customer sales and purchases, loans involving crypto collateral, stablecoin activity and anything else that might impact how holding crypto could impact a bank’s balance sheet, according to the guidance.

“The agencies continue to monitor developments in crypto-assets and may address other issues as the market evolves. Further, the agencies will continue to engage and collaborate with other relevant authorities, as appropriate, on issues arising from activities involving crypto-assets,” the statement concludes.

A full copy of the guidance can be found by clicking here.

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