July 21, 2024
Crypto Risks in Banking: FDIC Urged to Establish Clear Procedures and Guidance
Policy & Regulation

Crypto Risks in Banking: FDIC Urged to Establish Clear Procedures and Guidance

On Wednesday, a study on the FDIC’s crypto risk management practices was made public by the Office of the Inspector General of the Federal Deposit Insurance Corporation.

Two suggestions were given to the FDIC by the Office of the Inspector General, one of which was a procedure for monitoring crypto-related activity at regulated banks.

According to a press release, the OIG made the recommendations “based on evidence obtained during their evaluation.” It stated, “The FDIC’s lack of clear procedures causes uncertainty for supervised institutions in determining the appropriate actions to take.”

The OIG advises the FDIC to evaluate the risks associated with cryptocurrencies because, without “effective guidance,” the FDIC or the institutions covered by it “may not take appropriate actions to address the most significant risks posed by crypto assets.”

“Specifically, the FDIC has not yet completed a risk assessment to determine whether the Agency can sufficiently address crypto asset-related risks through actions such as issuing guidance to supervised institutions,” the report stated.

The OIG further cautioned that a lack of review procedures can give the impression that the supervisory body is not “supportive” of institutions using crypto or preparing to use it.

The suggestions made in the study were accepted by the FDIC, which “plans to complete corrective actions for these recommendations” by the end of January.

Additionally, the study criticizes cryptocurrency firms for making “misrepresentations” regarding deposits being insured by the FDIC. It gave the example of an anonymous cryptocurrency business.

“In 2022, a cryptocurrency company filed for bankruptcy. This company had been misrepresenting to its customers for over a year that the funds it held for customers were insured by the FDIC,” the report stated.

Many cryptocurrency businesses filed for bankruptcy in 2022, but the Federal Trade Commission most recently focused on insolvent lender Voyager for making false representations about FDIC insurance.

A FTC lawsuit claims that the corporation was “well aware” that the deposits were not insured by the FDIC.

Additionally, after claiming in an email to consumers that Blockworks was able to view that it had received “guidance” from the FDIC, Binance changed its terms of service to clarify that accounts are “not eligible” for insurance benefits.

Image: Wikimedia Commons

Disclosure Statement: Miami Crypto does not take any external funding, or support to bring crypto news to the readers. We do not have any conflicts of interest while writing news stories on Miami Crypto.

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