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Regulators warn U.S. banks on crypto risks including ‘fraud and scams’ after FTX collapse

Ether has outperformed bitcoin by far since each cryptocurrencies bottomed out in June 2022. Ether’s extraordinary gains got here as investors anticipate a significant update to the ethereum blockchain, dubbed a “merger”.

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US banking regulators warned financial institutions on Tuesday that coping with cryptocurrencies exposes them to numerous risks, including fraud and fraud.

“The events of the past 12 months have been marked by significant volatility and exposed vulnerabilities within the crypto asset sector,” regulators said in joint statement from the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. The comments come just a couple of weeks after the spectacular collapse of the FTX cryptocurrency exchange.

Regulators said the risks include: “fraud and fraud amongst participants within the crypto-asset sector” and “contagion risk within the crypto-asset sector attributable to interconnectedness amongst certain crypto-asset participants.”

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During the crypto boom, when financial players looked as if it would announce a recent crypto partnership every week, bank executives said they needed further guidance from regulators before tackling bitcoin and other cryptocurrencies more directly in retail and institutional trading.

Now, about two months after FTX filed for bankruptcy, the industry has been exposed as rife with risk mismanagement, intertwined risks and outright fraud.

While the statement indicated that regulators were still evaluating how banks could adopt cryptocurrencies while adhering to their various consumer protection and anti-money laundering mandates, it looked as if it would give a sign of where they were headed.

“Based on the present understanding and experience of the agencies up to now, the agencies consider that the issuance or possession as primary crypto assets which can be issued, stored or transferred on an open, public and/or decentralized network or similar system is extremely prone to be incompatible with secure and sound banking practices,” the regulators said.

They also said they’ve “serious security and stability concerns” for banks that deal with crypto customers or have “concentrated exposures” to the sector.

Traditional banks largely avoided the crypto crash, unlike the 2008 financial crisis during which they played a significant role. There was one exception The capital of Silvergate, whose shares have been overvalued within the last 12 months.

What you should know before investing in crypto
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