The crypto space is getting more regulatory attention by the end of 2022. The collapse of one of the largest global digital asset exchanges has caused huge losses in the industry. This event prompted some watchdogs to express concern and issue warnings about cryptocurrency involvement.
Several US Federal regulators have recently commented on the risks of crypto activities. These supervisors include the Federal Reserve, the Federal Deposit Insurance Corp, and the Office of the Comptroller of the Currency (OFOC).
According to a report on Tuesday, January 3, 2023, several officials from the three regulatory agencies warned lenders about exposure to digital assets. He mentioned that the rising risks should not extend beyond the banking system.
Regulators Notice Risks Associated With Crypto Involvement
The warning from the watchdog will come after the fall of the digital asset exchange FTX in 2022. Millions of customers lost their funds on the distressed platform, estimated at more than 8 billion.
From these observations, the US regulator stated the high volatility and vulnerability seen in the cryptocurrency space last year. He noted the importance of hedging the banking system properly. This will ensure that the risks in the crypto space cannot exceed the banks.
In addition, the regulators highlighted some risks from the involvement of digital assets in the banking system. These include fraud, fraud, regulatory uncertainty with custody of digital assets, platform vulnerabilities, ambiguous statements from companies, crypto contagion, and more.
As regulators of the banking system, these supervisors pledge undivided regulatory diligence. This means increased caution and stricter rules on banking organizations when it comes to digital exposure.
FTX Landing Creates More Doubt
Before the implosion, FTX was rated among the leading crypto exchanges worldwide. It has millions of users and investors from various sectors.
Due to the bankruptcy, some individuals and companies exposed to the platform suffered huge losses. The outplay caused concern and reaction both inside and outside the digital space. As a result, US regulators have tightened the rules of regulation on digital activities.
As revealed in the bankruptcy filing, some of the smaller banks listed on the exchange include Signature Bank and Silvergate. But both banks reported that they had only a minimal part of the total deposits in the exchange of distress.
According to US regulators, the wider financial system received less impact from the collapse of the FTX exchange. But the effect still harms some individuals and companies that invest in the platform.
Therefore, US supervisors created regulatory measures to prevent incidents in the financial sector.