The Office of the Comptroller of the Currency (OCC) said the digital asset industry was maturing but was “not yet robust” in its risk management.
A us banking industry regulator warned banks of the “emerging risks” of cryptocurrencies saying the sector ought to take a “cautious approach” and seek permission in some cases once participating with crypto or crypto firms.
Citing “dislocations” within the crypto market over 2022, the workplace of the comptroller of the Currency (OCC) highlighted what it said were “several key risks” of crypto in its Dec. 8 semiannual Risk Perspective for Fall 2022 report.
Its three main considerations are that “stablecoins could also be unstable,” the crypto industry lacks mature risk management practices and has a high risk of contagion due to the “high degree of interconnectedness.”
The space’s lack of “consistent or comprehensive regulation” and also the volatility of crypto, along with the increased vary of firms providing “bank-like products and services” using crypto and tokenized assets, were also cited as considerations, that the OCC believes raises queries relating to monetary stability.
The depeg and collapse of the TerraUSD Classic (USTC) algorithmic stablecoin in may was given as an example of stablecoins’ “run risk,” and how asset-backed stablecoins additionally saw minor depeg events as a result.
It highlighted stablecoin backings have “incrementally evolved” since, however believes most “remain susceptible to run risk.”
Discussing risk management, the OCC said practices at crypto corporations were maturing however are “not yet strong,” with companies appearing “unprepared for the stresses and surprises” over the past year that saw losses for millions of investors, it added:
“Hacks and outages are frequent, and fraud and scams remain high throughout the industry. In some cases, ownership rights, custody arrangements, and financial representations have created a high degree of confusion.”
The crypto market over 2022 additionally revealed the industry’s “interconnectedness [...] through a variety of opaque lending and investing arrangements,” according to the OCC.
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It remarked crypto participants “may be partaking in extremely leveraged trading” that resulted within the noted contagion risk.
In its recommendation to banks, the OCC said institutions considering engaging with crypto or crypto firms “should take a careful and incremental approach.”
The OCC advised national banks that crypto-related plans should be discussed “with their supervisory office” before they interact in any activities, as some probably require permission.
Crypto firms have moved to enhance transparency within the wake of the bankruptcy of FTX, with several exchanges introducing proof-of-reserves therefore users will verify crypto backings, along with some conducting public third-party audits.
(JESSE COGHLAN, Cointelegraph, 2022)