WASHINGTON—The Federal Reserve and White House have offered some direction into how they are working to mitigate cryptocurrency risks in the financial system with several new releases.
The Fed issued a policy statement to promote a level playing field and announced it denied Custodia Bank’s application to become a member of the Federal Reserve, while the White House released a roadmap on crypto risks, NAFCU reported.
The White House “Roadmap to Mitigate Cryptocurrencies’ Risks” has the potential to impact a broad range of entities that are offering or planning to offer digital asset related products, according to the organization. It directs that legislation should not “greenlight mainstream institutions, like pension funds, to dive headlong into cryptocurrency markets.”
The statement also suggests Congress might act to “strengthen transparency and disclosure requirements for cryptocurrency companies so that investors can make more informed decisions about financial and environmental risks,” NAFCU noted.
Priorities to be Released
In addition, the Biden Administration is expected to soon release priorities for digital assets research and development, NAFCU added.
The Fed’s policy statement applies primarily to banks since it concerns section 9(13) of the Federal Reserve Act, which gives the Fed the authority to prohibit or otherwise restrict state member banks and their subsidiaries from engaging as principal in any activity that is not permissible for a national bank, unless the activity is permissible for state banks under federal law.
‘Insufficient’ Risk Management
Separately, in denying Custodia’s – a special purpose depository institution chartered in Wyoming that specializes in crypto activities and does not have federal deposit insurance – application, the Fed noted the bank’s “risk management framework was insufficient to address concerns regarding the heightened risks associated with its proposed crypto activities, including its ability to mitigate money laundering and terrorism financing risks.”
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