A new report reveals that the Federal Deposit Insurance Corporation (FDIC) is navigating uncharted waters with its crypto asset risk strategy. The corporation’s Inspector General’s Office (OIG) shed light on the FDIC’s “bottom-up” approach initiated in early 2022. This method focuses on a deep dive into individual banks’ crypto dealings, paired with tailored supervisory feedback and industry-wide guidance crafted with other agencies.
The FDIC’s proactive stance involved querying banks about their crypto engagements. By January 2023, they had heard back from 96 institutions, all indicating varying involvement with digital currencies. However, the actual figures, including those advised to hold off on crypto transactions pending FDIC review, needed to be more conspicuously present in the public version of the report.
Despite these steps, the OIG identified gaps in the FDIC’s roadmap. The agency has ventured into developing strategies around crypto-associated risks. However, it needs a comprehensive assessment of these risks’ potential impacts and significance. The FDIC’s current trajectory must fully ascertain whether issuing guidelines to supervised entities would adequately mitigate arising threats.
Additionally, the procedure for responding to institutions following the initial inquiry appears nebulous. The OIG underscored the absence of a clear review timeline, leaving banks needing more clarity regarding the next steps. Consequently, the watchdog issued two specific recommendations, urging the FDIC to formalize its risk assessment process and clarify response protocols.
Significantly, these recommendations didn’t set off alarm bells but were instead categorized as non-critical. The FDIC, acknowledging the constructive critique, agreed with the findings. They committed to implementing corrective measures by January 2024, showing openness to bolstering their risk management framework.
This development is part of a broader effort since the inception of inspector generals in the federal landscape in 1978. These officials conduct autonomous audits and investigations, ensuring that agencies like the FDIC operate within the best practices’ parameters. Hence, the recent recommendations align with this tradition of continuous improvement in the face of emerging financial technologies.