Cryptocurrencies are often associated with speculation and high risks. However, regulators around the world are warning about the risks associated with crypto assets, particularly those that are liquid. Financial regulators in the United States and the Federal Reserve have issued a joint warning about these risks. The statement clarifies that banks should feel free to offer banking services to customers who hold crypto assets, provided that these services are compliant with applicable law or regulation. This indicates that crypto assets are not necessarily illegal or unsafe, and that there are potential opportunities for financial institutions to offer these products to their customers.
Financial regulators issue joint warning about risks of crypto-assets
The Federal Reserve and other financial regulators have issued a joint statement warning about the potential risks of liquidity in the crypto-asset sector.
The statement was published on Thursday, and is the second joint warning this year between the regulators.
The regulators warned that deposits by crypto entities may be susceptible to large and rapid inflows and outflows, when end customers react to crypto-asset-sector-related market events.
This is due to the volatility of the markets, which can lead to fraud, scams, legal uncertainties and inaccurate or misleading representations by crypto companies. Additionally, significant run risks are present due to the lack of regulation around these assets. The regulators also mentioned contagion risks, which could see the values of other cryptocurrencies decline as investors lose confidence in them.
Banking organizations using funding sources from crypto entities need to actively monitor liquidity risks and establish effective risk management and controls.
According to US financial regulators, there are risks associated with the use of crypto-assets and they advise investors to be aware of these risks. The joint warning issued by the US Federal Reserve and the SEC states that investors should be cautious about the volatility of these assets and take precautions to protect their interests.