The Office of Inspector General of the Federal Deposit Insurance Corporation has issued an evaluation report on its crypto asset risk strategy. The OIG recommends that the FDIC reassess the adequacy of its risk mitigation measures and present them in a more organized manner.
As a U.S. government agency that insures banks, the FDIC took a “bottom-up” approach to crypto risk assessment in early 2022. This involves understanding supervised institutions’ crypto activities, offering feedback case by case and providing broader industry guidance.
FDIC’s assessment process starts by sending institutions a letter to understand what they are doing with crypto. By January 2023, 96 institutions had shared their interest in or reported their crypto activities. However, the FDIC did not reveal how many of these institutions received feedback.
FDIC has not established a clear process for providing feedback on crypto-related activities for its member banks. According to the OIG report, the FDIC did not effectively communicate feedback with member banks between March 2022 and May 2023, asking some banks to stop crypto activities without proper explanation or follow-up.
OIG discovered that the FDIC had not evaluated the importance and potential impact of crypto asset risks, creating a significant gap in its approach to this rapidly changing field. OIG pointed out that the FDIC had not assessed its own ability to handle these risks.
“However, the Agency has not assessed the significance and potential impact of the risks. Specifically, the FDIC has not yet completed a risk assessment to determine whether the Agency can sufficiently address crypto-asset-related risks through actions such as issuing guidance to supervised institutions,” said the OIG in a statement.
Considering these findings, the OIG made two recommendations. First, the FDIC should create a plan with specific timeframes for evaluating risks associated with crypto-related activities. Second, it suggested that the FDIC update and clarify the process for providing supervisory feedback on supervised institutions’ crypto-related activities.
The FDIC has agreed to these recommendations and set a January 30, 2024, deadline for completing the corrective actions.
In 2023, there was significant debate in Congress on crypto asset regulation, but most proposed bills have not gained enough bipartisan support, putting pressure on lawmakers from both sides to act.
Democratic Senator Elizabeth Warren is leading the way by reintroducing the Digital Asset Anti-Money Laundering Act in late July and she gained support from Wall Street banks.
This legislation aims to reduce national security risks associated with cryptocurrencies by holding crypto businesses to the same standards as traditional banks. In a press release, Warren expressed concerns about cybercriminals favoring cryptocurrencies for transactions and called her bill the toughest proposal to combat crypto-related crime.
A bill was introduced in December 2022, aiming to push crypto wallet providers, miners and validators to adhere to the Bank Secrecy Act and implement know-your-customer requirements.
This legislation also assigns the Treasury Department, Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) the responsibility of creating review procedures for crypto businesses and instructs the Financial Crimes Enforcement Network to address regulatory gaps, especially related to self-custody wallets.
Warren is not the sole advocate in Congress for more transparent regulations. Just two days before Warren’s announcement, the House Financial Services Committee advanced a set of seven crypto-related bills. This initiative, led by Republicans including Chairman Patrick McHenry, Warren Davidson and Bill Huizenga, also aims to address these regulatory concerns.
Nevertheless, the effort to implement regulations has encountered criticism. Democratic Representative Maxine Waters pointed out that the bills seemed to favor the interests of the crypto industry more than the general public or the perspectives of other regulatory agencies.
In June, Waters also requested input from the SEC and the Treasury Department on the Digital Asset Market Structure Discussion Draft, a legislative proposal led by Republicans. This bill primarily aims to define whether a cryptocurrency is a commodity or a security.
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