The US central bank has warned that cryptocurrencies pose a “significant” threat to the wider banking system, writes Mark Hooson. In a joint statement, the Federal Reserve and US regulators including the Office of the Comptroller of the Currency – a branch of the US Treasury – said that risks related to the crypto industry must not be allowed to migrate to the banking system. Citing the “significant volatility” of the industry in the past year, the Fed said banking organisations should be aware of key risks including scams and fraud and inaccurate or misleading representations and disclosures by crypto-asset companies. The unprecedented warning came two months after the $1 billion collapse of the FTX crypto exchange and moments before its co-founder and ex-CEO, Sam Bankman-Fried, pleaded not guilty to eight counts of wire fraud, securities fraud, and conspiracy. If found guilty, Mr Bankman-Fried could face more than 100 years in prison for his alleged role in the exchange’s collapse. Last month, Ashley Alder, the incoming chair of the UK financial regulator, the Financial Conduct Authority (FCA), said crypto exchanges can facilitate money laundering. At present, cryptocurrency trading is largely unregulated in the UK. Consultations about bringing it into UK regulation as part of the Financial Services and Markets Bill are ongoing.
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