Regulatory Reminder: Existing Risk Management Principles Apply to Cryptocurrency-Related Activities

02/25/2023 21:17 • Metaverse Matters • 85 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

Analysis based on this information:

In a new announcement released on Thursday, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) reminded banking organizations to adhere to existing risk management principles when dealing with activities related to cryptocurrency. The regulators emphasized that they are not in the process of formulating new policies, but rather are urging banks to conduct careful risk evaluations in this field.

The regulators specified that banks should consider the concentration and correlation of the entire deposit and the potential liquidity risk posed by cryptocurrency activities. In other words, banks must ensure that they are not overexposed to cryptocurrency-related risks, and must have sufficient liquid assets on hand to address any potential liquidity shortfalls that may arise from these risks.

The regulator added that banking organizations must perform strong due diligence and continuous monitoring of all cryptocurrency-related activities. This means that banks must be knowledgeable about the potential risks of activities such as cryptocurrency transactions, and should monitor these activities to identify any suspicious activity.

Moreover, the regulators emphasized that banks should not lend the deposits of cryptocurrency customers, and should hold cash to support all deposits. This is because cryptocurrency accounts are especially vulnerable to hacking or other security breaches, and banks may not be able to recover the cryptocurrency in case of loss or theft. By holding cash reserves to support all deposits, banks can ensure that they have sufficient funds to reimburse customers in case of such an event.

In conclusion, this announcement by the Federal Reserve, FDIC and OCC reminds banking organizations of the importance of applying existing risk management principles when dealing with cryptocurrency-related activities. The regulators have reiterated that they are not implementing new policies, but urging banks to be especially diligent in assessing and monitoring the risks associated with this burgeoning field. By adhering to these principles, banks can minimize potential losses and ensure the safety of customer deposits.

Overall, the key takeaway is that banks must be extra careful when handling cryptocurrency activities, and must implement robust risk management and monitoring procedures to safeguard their operations from potential risks.

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