FDIC Issues Financial Institution Letter on Notification Requirements for Crypto-Related Activities

On April 7, 2022, the Federal Deposit Insurance Corporation (FDIC) released a financial institution Letter requesting that all FDIC-supervised institutions that intend to engage or are currently engaging in activities involving or related to cryptographic assets notify the FDIC.

Background

The FDIC letter outlines the need for the FDIC to engage directly with institutions that engage or plan to engage in crypto-related activities to better assess prudential and consumer risks on an individual basis of each activity . The letter outlines specific areas of concern specific to crypto-related activities. Under security and soundness, the letter highlights the risk associated with asset ownership, AML/CFT implications, cybersecurity, credit risk exposure and market risk surrounding asset pricing and valuation. With respect to financial stability, the letter outlines the FDIC’s concern about the possibility of a destabilizing effect or systemic risk posed by certain crypto assets or activities. In the area of ​​consumer protection, the letter highlights the potential for increased consumer confusion about the bank’s role when offering or marketing crypto assets.

Notification requirements

The letter instructs FDIC-supervised institutions to notify their appropriate FDIC Regional Manager before engaging in crypto-related activities. For institutions currently engaged in crypto-related activities, the letter calls for “prompt” notification. The initial notification must include a detailed description of the activity and a proposed schedule for that activity. Following notification, the FDIC will, on a case-by-case basis, request from the institution the information necessary for the agency to assess the aforementioned risk areas. The FDIC will then provide feedback to the institution, if appropriate. Finally, the letter encourages FDIC-supervised institutions to also notify their state regulator as part of this process.

National banks and federal savings banks

On November 18, 2021, the Office of the Comptroller of the Currency (OCC) released Interpretative letter #1179 regarding the authority of a national bank or federal savings to engage in certain cryptocurrency activities. This letter reaffirmed previous interpretive letters from the OCC approving certain crypto-related activities, “provided the bank can demonstrate, to the satisfaction of its oversight office, that it has controls in place to conduct the activity in a safe and healthy way”. The OCC advises banks to notify their appropriate supervisory office in writing of any intention to engage in crypto-related activities discussed in previous OCC interpretative letters, and not to engage in any such activities until a written no-objection is received. of this office.

Take away

As a general rule, it is always good practice for banking institutions, regardless of charter type, to engage with their regulator early and often before engaging in new business. This is especially true for new or largely untested activities such as those related to cryptocurrency or other digital assets. The FDIC and OCC letters discussed above only reinforce this fact, as each strongly underlines the underlying requirement that banks be able to demonstrate their ability to conduct all activities in a safe and secure manner. sound, especially those that are crypto in nature.

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