The Federal Reserve of the United States issued further guidance for banks considering cryptocurrency-related operations on Tuesday, emphasising that companies must notify the Fed ahead of time and ensure that anything they do is legally permissible.

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According to the Fed, while cryptocurrencies may create “potential opportunities” for banks, companies must confirm they have mechanisms in place to ensure the volatile assets do not compromise safety and soundness or user protections.

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Banks should also inform the Fed before indulging in any crypto-related operations, and banks that have already pursued crypto initiatives should alert the Fed about their participation in the digital asset area, according to the agency.

The Fed also advised state member banks to notify their state regulator before engaging in crypto activities.

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In the supervisory letter, the Fed stated that banks monitored by the agency should take several measures before dealing in any crypto-related operations, including determining if current laws required any specific filings and whether any operations under consideration were legally allowed.

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Before getting engaged in crypto, banks should have proper risk management systems and controls in place to assure that such endeavours were handled in a safe and sound way and were compatible with relevant consumer protection regulations, according to the Fed.

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The move comes just days after several Democratic senators, led by Massachusetts Sen. Elizabeth Warren, urged the United States Office of the Comptroller of the Currency (OCC) to withdraw previously issued crypto guidance and replace it with “a comprehensive approach in coordination with other prudential regulators.”

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The Fed and the OCC, two U.S. banking regulators, jointly stated last year that they aimed to make it clear in 2022 what kinds of operations banks may engage in involving cryptocurrencies, including whether companies could keep digital assets on their balance sheets and arrange crypto trades on behalf of clients.