On April 7, the FDIC issued a Financial Institution Letter (FIL-16-2022) calling on all FDIC-supervised intuitions that intend to engage in, or that are currently engaged in, any activities involving or related to crypto assets to notify the FDIC.
The FDIC has established safety and soundness standards for all FDIC-supervised institutions (Section 39 and Part 364 of the FDIC’s rules). Activities involving new and rapidly emerging technologies can amplify the risk to the insured depository institutions themselves, consumers, and the Deposit Insurance Fund. Thus, FDIC-supervised institutions are requested to provide information in accordance with the risk considerations below which will be used by the FDIC to provide relevant supervisory feedback.
- Safety and Soundness. Crypto presents ownership validation issues, accounting, auditing, and financial reporting difficulties, liquidity risks, anti-money laundering/countering the financing of terrorism implications, and IT risk exposure. Crypto assets also present concerns about whether it is possible for an FDIC-insured depository institution to manage these risks and exposures.
- Financial System Stability. The FDIC warns that 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 which could disrupt critical funding markets. The FDIC warns that these risks could potentially destabilize an entire financial institution.
- Consumer Protection. The FDIC believes that consumers may not understand the role of the bank or the speculative nature of certain crypto assets as compared to traditional banking products. The FDIC explains that institutions engaging in crypto activities face difficulties in effectively managing the application of consumer protection requirements, including laws related to unfair or deceptive acts or practices.
Putting It Into Practice: FDIC-supervised institutions engaging in, or planning to engage in crypto-related activities, should promptly notify the appropriate FDIC Regional Director describing the activity in detail and the institution’s proposed timeline for engaging in the activity.