US Banking Watchdog Says Crypto Turmoil Reinforces Cautious Approach

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Michael Hsu, acting chief of the Office of the Comptroller of the Currency (OCC), said the recent fireworks in the crypto industry have further cemented his resistance to allowing lenders unfettered exposure to the digital assets markets.

Hsu is one of the top U.S. banking regulators, and his reluctance to open up the wider financial system to crypto has been a significant hurdle in the industry’s push toward regulation. That view isn’t about to change, thanks to what he’s been seeing.

“There are some vulnerabilities and risks in that space that do warrant a cautious and careful approach,” Hsu told reporters on a call about his agency’s Semiannual Risk Perspective (released Thursday), which again highlighted digital assets as a space that could pose dangers to lenders in the U.S. The agency has been closely watching what’s been going on in the sector, including the sudden collapse of TerraUSD, officials said.

“It kind of reinforced where we've been this whole time,” Hsu said, pointing to earlier OCC guidance that instructed bankers to get approval from the agency before they get into new crypto activities. He said he’ll continue pursuing a “deliberative, cautious and careful approach to crypto.”

Other OCC officials on the call said that watching the meltdown of the algorithmic stablecoin and other industry troubles has taught regulators a lot about crypto – especially the confusing use of language in this space. When it comes to the custody of customer funds, the OCC has noted exchanges trying to explain themselves on what custody means for them, which is very different from what it means for banking. They added that industry disclosures continue to be a concern, because customers may not understand what they’re getting into.

Read more: US Fed Evaluating SEC’s Position on Digital Assets Custody, Powell Says