One of the top regulatory agencies in the US (the Federal Deposit Insurance Corporation, FDIC) has mandated banks under its supervision to report any current crypto-related transactions or intending ones.
Highlights From The Announcement
The FDIC made the official announcement through a detailed blog post on the regulator’s website. Part of the post states that the banks’ notification will enable the agency to determine whether such transactions are safe and follow proper consumer protection guidelines. Also, the regulator can determine whether there would be negative financial consequences of such transactions.
Apart from disclosing details about the crypto transactions, the FDIC also asked that the banks submit a possible timeline of these crypto transactions. The regulator claimed that it would review the details of the impending transaction and offer necessary feedback. Part of the blog also states that the FDIC supports innovations so long they are safe and fair to consumers and follow regulatory procedures.
However, the FDIC is skeptical about digital assets since it has almost zero experience dealing with cryptocurrencies. While regulators aimed to have a full understanding of crypto investment risks, the fast growth rate of the industry has made it almost impossible for it to have a proper analysis of the risks involved in crypto investments.
Hence, the FDIC opined that “it is almost impossible for insured depository institutions to properly apply consumer protection policies to new and fast-rising technologies such as blockchain and cryptos.” Furthermore, the FDIC claims that there are high levels of risks involved in crypto transactions and could even destabilize financial stability. According to the FDIC, consumers’ confusion regarding digital assets could cause disruptions like a “run” on a company’s financial investments.
Evaluating Crypto Investment Risks
Two months ago, the regulator revealed that one of its top tasks this year would be evaluating risks involved in digital assets. In an earlier report, the FDIC had claimed that digital assets shouldn’t have been integrated into the financial infrastructure in its current form as they could cause underlying risks to the foundational security of the current financial infrastructure.
It further said, “banks need to critically evaluate the risks involved in crypto offerings before dealing with such crypto-related transactions.” Part of the conclusion in the report states that “regulators need to offer detailed guidance to financial institutions on proper risk management and investor protection regarding digital assets. Thus, those crypto transactions can be conducted safely.”
Crypto Regulation Should Support Innovation – Treasury Secretary
The treasury secretary, Janet Yellen, has opined that any crypto regulation should support innovation and provide guidelines on proper risk management. Yellen reiterated that “risks and activities should be the basis of regulating innovations, not the technology behind the innovation.”
Yellen made her opinions known while speaking at the Kogod School of Business Center For Innovation on April 8. She added, “regulation must keep pace with innovation to prevent the unlearned from suffering the consequences.”