U.S Financial Regulators Will Offer Guidance on Crypto, Says FDIC Head

Acting Chairman of the United States independent financial watchdog Federal Deposit Insurance Corporation (FDIC), Martin Gruenberg has moved to guarantee that financial institutions will receive proper guidelines on how to deal with crypto assets from regulators in the U.S banking industry.

For the purpose of his speech at the Brookings Institute, he defined crypto assets as private sector digital assets that depend primarily on the use of cryptography and distributed ledger or similar technologies. Gruenberg explained that these financial regulators can only offer such recommendations when they have gained absolute knowledge of how the crypto ecosystem functions.

One reason attributed to the failure of the innovations like the volatile crypto asset class is the lack of understanding particularly as it concerns risks. Although some customers and even industry participants go as far as attaching no importance or sometimes totally ignore these risks in so much haste to invest. 

FDIC Ready to Assess Crypto Risks

According to Gruenberg, “The risks associated with these products are clear today, and would have been clearer then, had we stepped back and taken the time to thoroughly analyze them. Indeed, history and hindsight show that the better approach is often caution when confronted with conditions such as these.”

“We must understand and assess the risks associated with these activities the same way that we would assess the risks related to any other new activity. However, the risks associated with crypto–assets are novel and complex, so the assessment of these risks will take time and a significant amount of dialogue with multiple stakeholders,” he added

The acting chairman anticipates a potential future payment system that would include a U.S dollar-pegged stablecoin that further complements the imminent Federal Reserve’s FedNow service. Also, considerations were made on the harmonization of stablecoin with the U.S Central Bank Digital Currency (CDBC) the Digital Dollar if it is finally launched.

He believes that stablecoins designed for payment will offer better security if they are backed by permissioned blockchains with robust governance and compliance mechanisms

The FDIC has attempted to be on its toes in terms of ascertaining the regulation of virtual assets service providers (VASP). Recently, the watchdog issued a cease and desist order to FTX  after outlining an accusation that the crypto exchange immediately denied. Sam Bankman-Fried FTX was accused of misleading their client to believe that products and services were FDIC-insured.