The Office of the Comptroller of Currency (OCC) reiterated its concerns over banks' approach to crypto assets and firms in a report released Thursday.
“Most crypto market participants appear unprepared for the stresses and surprises that have taken place this year, resulting in substantial losses for millions of consumers,” the agency said in its Semiannual Risk Perspective.
The OCC advised the financial institutions it supervises to “take a careful and incremental approach to ensure appropriate controls and risk management practices are in place before scaling or engaging in additional activities.”
The suggestion is hardly new. As far back as June 2021, the OCC’s acting chief, Michael Hsu, said he planned to revisit crypto-related actions taken under his predecessor, Brian Brooks. The OCC told banks in November of last year to first seek the agency’s approval before engaging in certain digital asset activities. The Federal Deposit Insurance Corp. (FDIC) and Federal Reserve made similar assertions in April and August, respectively.
In the wake of the May collapse of the TerraUSD stablecoin and the bankruptcies, since July, of Voyager, Celsius, BlockFi and FTX, that warning may take on added urgency.
The crypto market’s implosion “revealed a high degree of interconnectedness between certain crypto participants through a variety of opaque lending and investing arrangements,” which has led to “a high risk of contagion” among participants, the OCC said Thursday.
Thursday’s report follows Hsu’s October plea for more information from banks regarding their crypto-related activities, so the agency can understand the scope of crypto-asset exposure.
Hsu defended his agency’s caution with the crypto sector in a hearing last month before the Senate Banking Committee.
“If banks can demonstrate that they can do that activity in a safe, sound and fair manner, we’re all ears,” he told lawmakers.
The OCC is working with other federal and state agencies to assess and research certain activities in the crypto world, it said Thursday.
But, Hsu said, banks that have been relatively more engaged — or less so — with crypto have tended to stand pat as the sector weathers its hurdles.
"There was more interest before Terra-Luna and FTX than since Terra-Luna and FTX in terms of banks wanting to inquire about how we were thinking about crypto activities within the banking system," Hsu said, according to Law 360. "That's probably obvious, but it's worth just kind of repeating."