The independent regulator found that the Federal Deposit Insurance Corporation was not prepared to advise member banks on cryptocurrency activities and their associated risks.

A new assessment by the Federal Deposit Insurance Corporation’s (FDIC) Office of Inspector General reveals significant gaps and deficiencies in the clarity it provides member banks on their policies and procedures regarding cryptocurrency activities.

The review of risk assessment strategies stems from the dramatic volatility in the cryptoasset industry since 2020, with a market capitalization of $3 trillion by November 2021 only to plummet to $1.2 trillion by April 2023. This volatility highlights several potential risks in liquidity, market pricing, and consumer protections that the FDIC must be aware of.

However, the FDIC’s efforts to address these potential risks were not enough. The Inspector General found that the FDIC’s failure to assess the significance and potential impact of crypto-asset risks resulted in significant gaps in its approach to this rapidly evolving industry. In fact, the Inspector General found that the FDIC did not address its actual ability to manage such risks, writing:

“Specifically, the FDIC has not completed a risk assessment to determine whether the agency can adequately address risks associated with crypto assets through actions such as issuing guidance to regulated institutions.”

Further complicating matters, the FDIC has yet to define a direct process for providing supervisory feedback on the cryptocurrency-related activities of its member banks. The report found that the FDIC failed to adequately communicate with member banks between March 2022 and May 2023, when it asked several member institutions to cease cryptocurrency activities without providing adequate justification or follow-up.

Based on these findings, the FDIC Inspector General made two recommendations. The first is that the FDIC develop a plan with a specified time frame to assess the risks associated with crypto-related activities. Second, it wrote that the FDIC should update and clarify the supervisory feedback process related to its review of the cryptocurrency-related activities of regulated institutions.

The FDIC has agreed to the recommendations and set a deadline of January 30, 2024, to complete corrective actions.

The OIG's findings not only highlight the urgent need for legislative action on crypto asset regulation, but also raise questions about the potential impact on the cryptocurrency and financial sectors if these risks are not addressed. While there has been considerable debate on this issue in Congress in 2023, most draft bills introduced to date have failed to gain sufficient bipartisan support. #FDIC  #加密货币