US Authorities Have Issued a Warning to Banks About the Potential Risks of Cryptocurrencies

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The United States Financial Conduct Authority and the Federal Deposit Insurance Corporation have issued their first ever combined warning to banks on the dangers linked with the bitcoin market.

The regulators warned the financial institutions to be on their guard against the possibility of fraud, legal ambiguity, and deceptive disclosures made by digital asset companies.

A warning was also sent to banks over the “contagion risk” posed by the industry.

It comes less than two months after the trading site FTX went down, which sent shockwaves across the cryptocurrency market.

The Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency in the United States issued a joint statement in which they said that they were carefully watching the activity of financial organizations regarding cryptocurrencies.

According to the statement, “The events of the previous year have been characterised by high volatility and the exposing of weaknesses in the crypto-asset industry.”

The authorities also said that it was “very likely to be inconsistent with safe and sound banking procedures” to issue or hold crypto tokens, which are held on public, decentralized networks. This statement was made in reference to the fact that crypto tokens are stored.

In addition, banks were urged to take action in order to prevent issues in the digital asset market from spreading to the broader financial system.

“It is crucial that risks associated to the crypto-asset sector that cannot be mitigated or managed do not move to the financial system,” it continued. “The banking system is not a suitable environment for these risks.”

The statement that was released on Tuesday follows many months of reluctance by watchdogs of the US financial sector to publish universal recommendations on cryptocurrencies, despite the fact that institutions have requested clearer guidance from authorities.

The failure of the FTX bitcoin exchange in November sent shockwaves across the sector.

It was the second biggest cryptocurrency exchange in the world, and it served as the gateway for millions of consumers to enter the market for digital assets.

On Tuesday, Sam Bankman-Fried, who had previously served as the chief executive officer of FTX, issued a formal denial of the allegations that he had misled consumers and investors.

In a court in the United States, he entered a plea of not guilty to charges that he stole client deposits from FTX and used the money to support his other company, Alameda Research, as well as to acquire property and make political contributions.

The whole cryptocurrency business has been rocked up as a result of the inquiry, which has already resulted in two of Mr. Bankman-closest Fried’s colleagues pleading guilty and helping with the probe.

Mr. Bankman-Fried was one of the most prominent personalities in the industry and was well-known for his political connections, celebrity endorsements, and bailouts of other companies that were having financial difficulties.

The United States government has leveled allegations against him that allege he constructed “a house of cards on a foundation of lies, while claiming investors that it was one of the safest structures in crypto.”

 

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