It has been reported that U.S. banking regulators warned financial institutions on Tuesday that dealing with cryptocurrency exposes them to an array of risks, such as scams and fraud, of which they are not immune. These comments come just weeks after the spectacular collapse of crypto exchange FTX.
In the view of the regulators, some of the risks include: “fraud and scams among crypto-asset sector participants” and “contagion risk within the crypto-asset sector due to interconnections between certain crypto-asset sector participants.”
Almost two months after FTX filed for bankruptcy, it is now clear that the sector is plagued by bad risk management, interconnected risks, and outright fraud that is rampant throughout the industry. Also, they said that they have “significant safety and soundness concerns” about banks that serve crypto clients or have “concentrated exposures” to the technology.
According to a statement released jointly by the Federal Reserve, Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency, the past year’s events have been characterized by high volatility and the exposure of vulnerabilities in the crypto-asset sector.
These vulnerabilities have been evident in the cryptocurrency market, where unregulated actors are able to take advantage of unwitting investors, leading to significant financial losses. In light of these events, regulators have made it clear that they will not tolerate any kind of fraudulent activity or bad risk management in the cryptocurrency sector.