Washington

US regulators issued a warning to the banks over the risk associated with the cryptocurrency market, following the spectacular collapse of crypto exchange platform FTX. They asked the financial institutions to be watchful of any potential fraud, legal uncertainty, and misleading disclosures by digital asset firms. In a joint statement on Tuesday, the US Federal Reserve, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency said they were closely monitoring the crypto activities of banking organisations.

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“The events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector,” the statement said.

Among the risks highlighted by the regulators include “fraud and scams among crypto-asset sector participants” and “contagion risk within the crypto-asset sector resulting from interconnections among certain crypto-asset participants.”

The regulators added that they were still assessing how banks could adopt crypto while adhering to their various mandates for consumer protection and anti-money laundering.

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FTX founder Sam Bankman-Fried pleads not guilty in US court; October 2 set as tentative trial date

“Based on the agencies’ current understanding and experience to date, the agencies believe that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralised network, or similar system is highly likely to be inconsistent with safe and sound banking practices,” the watchdog said.

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The US regulators have been on the toes ever since FTX filed for bankruptcy in November.

FTX's former chief executive Sam Bankman-Fried on Friday denied charges that he defrauded customers and investors.

In a US court, he pleaded not guilty and claimed that he took customer deposits at FTX to fund his other firm, Alameda Research, buy property and make political donations.

Two of Bankman-Fried's closest colleagues have already pleaded guilty and are cooperating with the investigation.

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