Financial Services

Highlights From Federal Bank Regulators’ Joint Statement on Cryptocurrency Assets

Cryptocurrency Assets

Recognizing that regulated and non-regulated financial institutions seek to engage in cryptocurrency and crypto asset activities, the three largest federal bank regulators, the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, recently issued a joint statement on crypto assets.

The regulators broadly defined crypto assets as any digital asset implemented using cryptographic techniques. Using what could be described as “agile policy-making,” the agencies conducted a series of interagency “policy sprints” focused on crypto assets. As always, the regulators’ main concern was to promote safety and soundness, consumer protection, and compliance with applicable laws and regulations, including anti-money laundering (AML) and illicit finance statutes and rules.

Regulators reviewed and analyzed a number of crypto asset activities in which banking organizations may be interested in engaging, including:

  • Crypto asset custody
    • Our client, a global investments company, announced plans to provide crypto custody to clients earlier this year.
  • Facilitation of customer purchases and sales of crypto assets
    • Broker-dealers will potentially be interested and impacted by regulators’ decisions on facilitating cryptocurrencies and crypto assets.
  • Loans collateralized by crypto assets
    • In the 1980’s, S&Ls became overextended to oil and gas producers who provided their wells as collateral. When oil prices plunged, the S&Ls were left with bad loans, and their collateral was a hole in the ground. Regulators will be looking to avoid a digital asset version of the S&L crisis.
  • Activities involving payments, including stablecoins
    • Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference. Stablecoins may be pegged to a currency like the U.S. dollar or a commodity’s price, such as gold. Imagine the complexities that will abound when structured notes, which are notes that have a built-in derivative, begin to peg their principal and interest payments to the value of a stablecoin.

2022 Planned Roadmap

The three federal regulators announced a plan to provide greater clarity on whether certain activities related to crypto assets conducted by banking organizations are legally permissible, as well as expectations for safety and soundness, consumer protection, and compliance with existing laws and regulations related to:

  • Crypto asset safekeeping and traditional custody services
    • Traditional custody services in this context include facilitating the customer’s exchange of crypto assets and fiat currency, transaction settlement, trade execution, recordkeeping, valuation, tax services, and reporting.
  • Ancillary custody services
    • Ancillary custody services could potentially include staking, facilitating crypto asset lending, and distributed ledger technology governance services.
  • Facilitation of customer purchases and sales of crypto assets
  • Loans collateralized by crypto assets
  • Issuance and distribution of stablecoins
  • Activities involving the holding of crypto assets on balance sheet

If your organization is interested in building capabilities and solutions to support cryptocurrencies, don’t hesitate to reach out to learn how we can help.

About the Author

Carl is certified in the Scaled Agile Framework (SAFe), a Scrum Master, and a Six Sigma Green Belt project manager with more than 25 years of experience in financial services overseeing large-scale development global, multi-currency accounting, regulatory reporting, and financial reporting software platforms. He has hands-on experience completing, reviewing, and filing Federal Reserve, FFIEC, and IRS reports, including Call Reports, Y9C reports, 2900 reports, TIC reports, and arbitrage rebate reports.

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