Regulators Warning on Digital Assets
The Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency (OCC) recently issued a joint statement that expressed the agencies’ concerns with banks that have business dealings tied to digital assets, including cryptocurrency.
While the statement doesn’t bar banks from getting involved, it highlights many risks while referencing the volatility that took place last year in the crypto industry. The regulators specifically noted that recent events “highlight a number of key risks associated with crypto-assets and crypto-asset sector participants that banking organizations should be aware of.”
The SRM Digital Assets Advisory Team views the statement as a shot across the bow to encourage the digital assets industry to clean up its act. There is an opportunity, as the industry can address many of the risks identified by the federal agencies through the thoughtful, careful application of digital assets and related technologies.
Here are some other key takeaways:
Be aware of the risks. While we believe digital assets and related technologies are the future of finance, they offer both opportunities and risks. Digital asset solutions must be implemented in a compliant fashion, with a dedicated focus on the due diligence of digital asset vendors, implementing good security protocols and risk management procedures, and providing customer education and clear disclosures.
Outside help is needed. Outside of a large institution like JPMorgan Chase – which has a department dedicated to investigating and implementing technologies, developing a sound digital asset strategy, picking the right partners, and applying compliant solutions – FIs will require the aid of independent, trusted experts like SRM.
Leverage a reputation of trust. For the past few years, banks and credit unions have lost deposits and business to crypto exchanges, fintechs, brokerage companies, neobanks, and other digital asset solution providers. Given current market angst, there’s an immediate opportunity for traditional FIs to do this right and excel by remaining a reliable service provider for customers and members.
Continue to monitor agency communication. While regulators do not make laws, they do craft rules. How they define crypto assets will be very important. Will it include tokenized assets and stablecoins? What blockchains will make them comfortable? Many questions still need to be answered.
We applaud the Federal Reserve, FDIC, and OCC for highlighting the risks. Now it’s time for the banking industry to get the technology and the processes right.
The Bottom Line
When it comes to digital assets, SRM can help you develop a better understanding of the risks, opportunities, business cases, regulations, vendors, and competitors. Our advisory team is committed to helping financial institutions obtain the education they need to assess the market, determine client needs, develop product strategies, select the right partners, and roll out compliant solutions to drive revenue and minimize risk.
SRM is a DakCU Senior CAP Partner that has been helping a number of Dakota credit unions with card portfolio savings. They have been selected by more than 700 financial institutions to advise in areas such as payments, digital banking, core processing, and operational efficiencies, unlocking billions of dollars in value and improved the competitive advantage of its clients with a reputation for industry-leading subject matter expertise, a proprietary benchmark database, and proven negotiating skills. Visit srmcorp.com for more information or contact Blaine Peterson, Senior Vice President or George McDonald, DakCU’s Chief Officer of Strategic Services.
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