FDIC says banks pursuing crypto projects should check in with it first

WASHINGTON — The Federal Deposit Insurance Corp. is telling its banks to check in with the agency if it’s currently or planning on pursuing any cryptocurrency-related activities.

The FDIC’s guidance letter follows similar instructions from the Office of the Comptroller of the Currency, which instructed banks in November that want to offer custody services or engage in other crypto-related activities to get the approval of their local OCC supervisory office. Both sets of guidelines emphasized the potential risks of cryptocurrency, especially as banks are increasingly getting into digital assets.

“With both documents right now, the agencies are saying we’re not going to stop banks from engaging in banks involving crypto,” said Todd Phillips, director of financial regulation and corporate governance at the Center for American Progress. “We just want to be told about it in advance so we can understand the risks that banks are facing and evaluate and understand whether the activities have implications for the bank's safety and soundness.”

Andrew Harrer/Bloomberg

The letter is the latest in a string of actions from the Biden administration aimed at establishing a regulatory framework for digital assets. In a speech earlier in the day, Treasury Secretary Janet Yellen discussed the risks that digital assets pose to the financial system now that interest among banks and other traditional financial institutions is growing.

In its letter, the FDIC instructs banks that want to engage in activities involving cryptocurrencies (or that are already involved in those activities) to notify an FDIC regional director, and provide “all necessary information that would allow the FDIC to engage with the institution regarding related risks.”

The agency will ask for information on a case-by-case basis, depending on the type of activity the institution wants to pursue, but the initial notification to the FDIC should describe the institution’s goals and a proposed timeline. The FDIC says it will review the notification and consider asking for more information based on its broad concerns.

The FDIC’s concern falls into several buckets around safety and soundness, financial stability and consumer protection regarding cryptocurrency-related activities, according to the guidance issued by the agency.

“Crypto-related activities present new, heightened, or unique credit, liquidity, market, pricing, and operational risks that could present safety and soundness concerns,” the agency said in its letter. “For example, there are fundamental ownership issues, including whether it is possible for ownership to be clearly validated and confirmed.”

The FDIC also noted “significant” concerns related to anti-money laundering and the financing of terrorism.

On financial stability, the agency said that crypto assets could pose a systemic risk because of the structure of a cryptocurrency, or via the interconnectedness of certain digital assets: “For example, a disruption in crypto-asset transactions or crypto-related activities could result in a 'run' on financial assets backing a crypto asset or crypto-related activity.”

The FDIC said it’s worried that consumers could be confused about the role of a bank or that a cryptocurrency is speculative when the customer interacts with a bank that typically offers more traditional banking products. Depository institutions could also have issues enforcing consumer protection requirements in activities related to cryptocurrency, the agency said.