On July 14th, a collaborative announcement was made by three prominent US regulatory bodies releasing a joint statement cautioning banks on potential hazards linked to cryptocurrency custodianship on behalf of clients.
The statement was issued jointly by the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Federal Reserve Board.
According to the agencies, the purpose of the release is not to create new mandatory guidelines. Instead, it’s designed as advisory information for banks weighing potential involvement in the cryptocurrency sphere.
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The document, formally known as Crypto-Asset Safekeeping by Banking Organizations, specifies crucial considerations for banks, including in-depth knowledge of the underlying technology, risk management strategies related to potential loss of customer crypto holdings, and compliance with existing regulations concerning anti-money laundering and consumer protection.
The regulatory agencies emphasized that securely managing cryptocurrency necessitates considerable dedication and resources. Furthermore, banks are accountable for the conduct of any appointed sub-custodians.
Even when banks delegate cryptocurrency custody to external entities, as exemplified by BlackRock’s partnerships with Coinbase
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and Anchorage, the originating bank retains ultimate responsibility. A sub-custodian data breach or mismanagement event could expose the bank to potential liabilities.
The advice extends to creating comprehensive audit procedures tailored to the unique characteristics of cryptocurrency. These processes should address cryptographic key management, asset transfer and settlement protocols, and staff training programs.
If a bank determines it lacks sufficient expertise or infrastructure, it should strongly consider engaging outside consultants to assess and enhance its cryptocurrency-related activities.
In a related development, Shenzhen authorities issued a warning regarding fraudulent investment opportunities connected to stablecoins and other virtual currencies. Want to know more? Check out the details.
Having completed a Master’s degree in Economics, Politics, and Cultures of the East Asia region, Aaron has written scientific papers analyzing the differences between Western and Collective forms of capitalism in the post-World War II era.
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