Federal Reserve has recently published a detailed 86-page report on the matter of membership applications for Custodial banks. This report was published recently and has issued a detailed view and treatment of the membership applications submitted by various custodial banking enterprises since January starting this year.
The report has reflected that several banks were unable to qualify for membership approval on account of their ties with crypto.
The report has raised questions about the stance of the government regulators and Central Bank on the matter of cryptocurrency-related regulations.
The contents of this report have suggested that the banks that were barred from getting a membership had included small plans for investment in miscellaneous economic activities. Meanwhile, these banking enterprises had a considerable stake in the cryptocurrency sector.
The Role of Custodial Banks in the Crypto Sector
The Fed report in question has commented that banks that are planning to venture into the cryptocurrency sector might be risky on account of the uninsured deposits.
These banking enterprises are eager to offer better products and services about the cryptocurrency market. However, they may inadvertently serve as instruments for illegal financial activities and other related risks.
This document also talks about the need for Fed to increase its control and improvement its risk management network to monitor such business models. Fed report claims that thus far most custodial services providers have not managed to offer a proper risk-management structure with an emphasis on crypto trading options.
The report also claimed that Fed has yet to deal with the issue related to the lack of diversification in the business model of cryptocurrency entities.
Federal Reserve report has maintained that banks with a custodial membership cannot have permission to offer crypto-related services on account of the speculative and volatile nature of digital currencies.
The central banking authority has also maintained that until national banks are approved for crypto dealings custodial banking enterprises must be kept from delving into the nascent sector. Nathan Miller a spokesperson for Custodial Bank has claimed that the Fed response is based on the flaws in the procedural inconsistencies.
He also mentioned that lack of evidence and fact-based analysis reflected in the Fed report. Miller invokes that Fed has an inherent bias against cryptocurrencies. He claimed that there Fed has opted to ignore the innovation and technological development taking place in the field of finance with blockchain.
He claimed that government regulators can help the sector by focusing their attention on areas where there is a real need for risk management.
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