US Regulators Issue An Official Warning About Crypto Risks

Two months after the FTX collapse and Sam Bankman-arrest, Fried’s the declaration emphasizes the importance of safeguarding the traditional banking sector.

The collapse of FTX was not only unexpected but also unwelcome in the crypto sector. In addition to enormous losses, it prompted regulatory authorities to enhance scrutiny. In keeping with this, US regulatory bodies have warned financial institutions about the hazards of crypto assets.

Banks in the United States have been warned to be cautious.

In the late hours of Tuesday, three federal regulatory bodies issued a unified statement highlighting the risks of the crypto sector to the concerned banking firms. The statement was issued by the Federal Reserve Board of Governors (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).

Banks should be on the lookout for misleading information from digital asset businesses and prevent scams, according to a joint statement issued by the Fed, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.

The official warning comes just two months after the collapse of FTX produced a “domino effect” on the larger crypto market and illustrates “the volatility of the market and the high degree of risk that investors in this sector have to cope with”.

According to the statement, the failure of companies such as FTX, Voyager, Celsius, and others has made it necessary to increase safeguards. The regulators have advised banking institutions to take the same cautious approach to crypto assets as they have. In addition, the united statement stated

“Based on the agencies’ current understanding and experience, the agencies believe that issuing or holding as principal crypto-assets issued, stored, or transferred on an open, public, and/or decentralized network, or similar system, is highly likely to be inconsistent with safe and sound banking practices.”

Earlier last month, the Federal Reserve, FDIC and OCC were also in agreement with the Financial Stability Oversight Council, citing crypto assets to be a “risk group”.

The role of FTX

Last November’s collapse of the second largest cryptocurrency exchange resulted in billions of dollars in damages, while crypto market “fallen angel” Sam Bankman-Fried was recently arrested in the Bahamas and deported to the United States.

He has rejected allegations of scamming FTX investors and customers, claiming that he never used FTX cash to finance Alameda Research, buy real estate, or make political payments. FTX and SBF were well-known for their links with politicians, celebrities, and influencers, as well as their bailouts of struggling enterprises.