Digital assets can expand the functionality of financial services, but banks need to be aware of some risks. This was stated by the US Office of the Comptroller of the Currency (OCC) in the latest report.
The financial sector is now increasingly interested in cryptos as the total digital assets market cap has ballooned since last autumn. As a result, some banks decided to explore the development of crypto-custody services and crypto-asset derivative products.
The OCC has published a report that provides an analysis of how cryptocurrencies can interact with the banking sector, as well as the possible risks of this interaction. The conclusion is that DLT and digital assets, stablecoins included, can greatly expand the functionality of financial services.
Nonetheless, banks should still consult with their supervisory authority, the OCC, before offering services such as storage of derivative products and access to third-party crypto products in the cryptocurrency sector.
As the OCC claims, the use of cryptocurrencies implies ensuring sufficient knowledge and expertise in the underlying products and services so as to identify and address strategic, operational, compliance, and reputational risks. “Sound risk management of crypto-related product offerings includes alignment with a bank’s strategic goals, risk appetite, resources, and expertise,” follows the report.
The OCC highlights its main warning. While cryptocurrencies may open up vast opportunities for the banking sector, it’s still crucial to understand the associated risks. In 2022, the OCC plans to introduce additional guidance to provide banks with some vital instructions on how to deal with cryptos.
Back in November, the OCC explained the regulatory aspect of crypto activities conducted by the US national banks and federal savings associations. The watchdog advocated tightening the law on the regulation of stablecoins as well. In September, OCC Director Michael J. Hsu said that DeFi could provoke an economic collapse similar to the international financial crisis of 2008.
The time for crypto in traditional finance has come! Financial and public sectors prove to be aimed at interaction with crypto, longing to enhance their services and products, however, various associated risks may still be putting up roadblocks. The United States Office of the Comptroller of the Currency tries its best to ease the interaction with the whole new digital assets sector and promises more guidelines on that matter.
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The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.
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