As banks ramp up their involvement in the crypto-asset sector, the Federal Reserve has fired a warning shot through their bows. He issued a letter asking all banks to assess the legality and risks associated with their crypto-asset activities and notify their point of contact at the Federal Reserve in advance.
All banks already participating in crypto-assets must do the same if they have not already done so. He also encouraged state banks to contact their state regulator.
“Given the heightened and new risks posed by crypto-assets, the Federal Reserve is closely monitoring related developments and the involvement of banking organizations in crypto-asset-related activities,” the document said.
The letter begins on a positive note acknowledging the potential opportunities of crypto-assets for banks and their customers, but the rest focuses on the risks. This includes cybersecurity, anti-money laundering, consumer protection and financial stability risks.
Regarding technology, in addition to cybersecurity, he also mentions network governance. “These risks are particularly heightened when the underlying technology involves open and permissionless networks,” the letter states.
The document describes crypto-assets very broadly as any digital asset that uses cryptographic techniques. We could split hairs, but we would differentiate between tokenized bank money and stablecoins. The former was not explicitly mentioned in the letter’s listing: “Crypto-asset-related activities may include, but are not limited to, crypto-asset custody and traditional custodial services; auxiliary child care services; facilitation of purchases and sales of crypto-assets by customers; loans secured by crypto-assets; and the issuance and distribution of stablecoins.
Meanwhile, earlier this week the Federal Reserve issued guidelines on how it will assess which banks can access primary accounts for banks with “new” charters, which would include those in the crypto industry.