Banking authorities in the United States are creating standards for institutional involvement in crypto

The Securities and Exchange Commission (SEC) of the United States has stayed mostly silent on cryptocurrency regulation so far. However, the country’s financial authorities are allegedly working on establishing a more defined approach for institutions interested in dealing with cryptocurrency. This is being done in an attempt to maintain control over the fast-rising asset class before it spirals out of control and truly enters the mainstream.

Jelen McWilliams, Chair of the Federal Deposit Insurance Corporation (FDIC), said in an interview with Reuters that a roadmap for financial institutions is being established. This will include stronger requirements for the safekeeping of cryptocurrency. As she put it,

“I believe that we should enable banks to operate in this market while prudently managing and limiting risk. If we do not introduce this activity within banks, it will grow on the outside…. Federal authorities will be incapable of regulating it.”

These recommendations should contain provisions governing the custody of crypto assets, the facilitation of client trading by banks, and the use of crypto-assets as collateral for loans. McWilliams also stated that banks would ultimately be required to store them on their balance sheets alongside more conventional assets.

“My objective in this inter-agency committee is to essentially pave the way for banks to function as custodians of these assets and to utilize crypto and digital assets as collateral.” We’re going to address how and under what conditions banks can store them on their balance sheets at some point.”

American authorities have yet to adopt a definite view on how the country’s banks should deal with cryptocurrencies. Earlier in May, the Office of the Comptroller of the Currency (OCC), the Federal Reserve, and the FDIC organized an “intra-agency sprint team.”

This was founded with the goal of concentrating regulatory efforts on the cryptocurrency business while fostering policy coordination among the three major financial authorities.

However, a Politico article released earlier this month indicated that a prominent regulator under Trump’s administration permitted banks to trade cryptocurrency on their customers’ behalf as early as January. The OCC is now reviewing the judgment, which was made public on 22 October 2021.

McWilliams also noted the difficulties associated with adopting rules that would instantly integrate cryptocurrency into regular banks in an interview with Reuters. The primary obstacle, she said, is unpredictability. It complicates their use as collateral or as a supplement to a bank’s balance sheets.

“The problem is… the valuation of these assets and the daily fluctuations in their worth. You must determine how to approach such balance sheet positions in terms of capital and liquidity.”

Despite the absence of regulatory clarity, leading banks in the United States have continued to provide crypto-related services to their customers. US Bank, following JP Morgan Chase’s example, offered a crypto-custody service for fund managers earlier this month. Citigroup and Goldman Sachs have also begun trading Bitcoin Futures in the last year, and increased demand for these assets suggests that this list will continue to expand.

Also Read: US Regulators Investigate Allowing Banks To Hold Bitcoin