On January 3, The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (the Agencies) issued a joint statement to banking organizations highlighting a number of risks associated with crypto-assets.

While the Agencies expressly state that “banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation,” they nonetheless caution that “holding as principal crypto-assets that are 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.” Some banks may interpret this to mean that, practically speaking, they cannot engage in such activities. Further, the Agencies state that they “have significant safety and soundness concerns with business models that are concentrated in crypto-asset-related activities or have concentrated exposures to the crypto-asset sector.” It will be interesting to see whether state banking regulators issue a similar statement.

The risks highlighted by the Agencies, which are nothing new, include:

  • Risk of fraud and scams;
  • Legal uncertainties related to custody practices, redemptions, and ownership rights of crypto assets;
  • Inaccurate representations by crypto-asset companies, including misrepresentations regarding federal deposit insurance;
  • Significant volatility in crypto-asset markets;
  • Susceptibility of stablecoins to run risk;
  • Contagion risk within the crypto-asset sector resulting from interconnections among certain crypto-asset participants;
  • Inadequate risk management and governance practices in the crypto-asset sector; and
  • Heightened risks stemming from lack of oversight, the absence of clearly established roles, and vulnerabilities related to cyber-attacks, outages, lost or trapped assets, and illicit finance.

The Agencies further stated that they are “supervising banking organizations that may be exposed to risks stemming from the crypto-asset sector and carefully reviewing any proposals from banking organizations to engage in activities that involve crypto-assets.” The joint statement concludes by advising banking organizations to ensure that crypto-asset-related activities are performed in a safe and sound manner in compliance with applicable laws and regulations. Banking organizations should also ensure appropriate risk management to effectively identify and manage the inherent risks.

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Photo of Keith J. Barnett Keith J. Barnett

Keith’s experience representing clients in the financial services industry as a litigation, compliance, regulatory, investigations (internal and regulatory), and enforcement attorney spans 20 years. Keith represents clients against government regulators (CFPB, FTC, SEC, CFTC), industry regulators (FINRA), and private litigants in federal courts…

Keith’s experience representing clients in the financial services industry as a litigation, compliance, regulatory, investigations (internal and regulatory), and enforcement attorney spans 20 years. Keith represents clients against government regulators (CFPB, FTC, SEC, CFTC), industry regulators (FINRA), and private litigants in federal courts, state courts, and before arbitration and administrative law panels in the financial services industry.

Photo of Kalama Lui-Kwan Kalama Lui-Kwan

Kalama represents parties in complex commercial disputes arising out of M&A deals. He also has a national litigation practice representing consumer-facing companies in class actions and regulatory investigations.

Photo of James Stevens James Stevens

James provides corporate and regulatory advice to our clients. He has substantial experience in the representation of public and private companies, including banks, neobanks, marketplace lenders, payments companies, crypto and DeFi companies, and other fintech and financial services providers in connection with formation…

James provides corporate and regulatory advice to our clients. He has substantial experience in the representation of public and private companies, including banks, neobanks, marketplace lenders, payments companies, crypto and DeFi companies, and other fintech and financial services providers in connection with formation, licensing, sponsorship and program agreements, mergers and acquisitions, debt and equity financing transactions, joint ventures, and regulatory reporting and compliance.

Photo of Ethan G. Ostroff Ethan G. Ostroff

Ethan Ostroff’s practice focuses on financial services litigation and consumer law compliance counseling. Ethan is part of the firm’s national practice representing consumer-facing companies of all types in defense of individual and class action claims and counseling them on compliance with federal and

Ethan Ostroff’s practice focuses on financial services litigation and consumer law compliance counseling. Ethan is part of the firm’s national practice representing consumer-facing companies of all types in defense of individual and class action claims and counseling them on compliance with federal and state laws.

Photo of Carlin McCrory Carlin McCrory

Carlin is a regulatory, compliance, and payments attorney with experience representing financial institutions, fintechs, lenders, debt collectors, payment processors, neobanks, virtual currency companies, and mortgage servicers.