July 5, 2022

Volume XII, Number 186

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July 05, 2022

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FDIC Warns Insured Institutions Engaging in Crypto Activities About Risks

On April 7, the FDIC issued a Financial Institution Letter (FIL-16-2022) calling on all FDIC-supervised intuitions that intend to engage in, or that are currently engaged in, any activities involving or related to crypto assets to notify the FDIC.

The FDIC has established safety and soundness standards for all FDIC-supervised institutions (Section 39 and Part 364 of the FDIC’s rules). Activities involving new and rapidly emerging technologies can amplify the risk to the insured depository institutions themselves, consumers, and the Deposit Insurance Fund. Thus, FDIC-supervised institutions are requested to provide information in accordance with the risk considerations below which will be used by the FDIC to provide relevant supervisory feedback.

  • Safety and Soundness. Crypto presents ownership validation issues, accounting, auditing, and financial reporting difficulties, liquidity risks, anti-money laundering/countering the financing of terrorism implications, and IT risk exposure. Crypto assets also present concerns about whether it is possible for an FDIC-insured depository institution to manage these risks and exposures.

  • Financial System Stability. The FDIC warns that a disruption in crypto-asset transactions or crypto-related activities could result in a “run” on financial assets backing a crypto asset or crypto-related activity which could disrupt critical funding markets. The FDIC warns that these risks could potentially destabilize an entire financial institution.

  • Consumer Protection. The FDIC believes that consumers may not understand the role of the bank or the speculative nature of certain crypto assets as compared to traditional banking products. The FDIC explains that institutions engaging in crypto activities face difficulties in effectively managing the application of consumer protection requirements, including laws related to unfair or deceptive acts or practices.

Putting It Into Practice: FDIC-supervised institutions engaging in, or planning to engage in crypto-related activities, should promptly notify the appropriate FDIC Regional Director describing the activity in detail and the institution’s proposed timeline for engaging in the activity.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 101
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
Associate

Gabriel is an Associate on the Telecom team and the Co-Lead Associate on the Blockchain and Digital Assets team in the firm’s Washington, D.C. office. He is a Blockchain Law Professional as Certified by the Blockchain Council.

At Sheppard Mullin, Gabriel assists the Telecom team in all aspects of communications law and regulation including, satellites, spectrum, 5G implementation, media companies, and new technologies. He assists the Blockchain and Digital Assets team in legal issues relating to the use of blockchain technology, social media, internet, video games, online gambling,...

202-747-2194
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