What’s the issue?
It seems everyone is talking about digital assets these days. Cryptocurrencies, stablecoins, and central bank digital currency are all digital assets that are of interest to both consumers and financial services providers. To meet that interest and demand, banks and non-banks (such as fintechs) alike are examining ways to participate in the market and offer their customers access to and use of digital assets.
While consumer popularity of digital assets is growing, there is no comprehensive, regulatory standard that provides guidelines for risk management and consumer protection in the digital asset market. Stories of mismanagement of digital assets highlight a growing need for evaluation and creation of standards around digital assets.
How does this impact consumers?
Lack of a comprehensive regulatory framework means that different digital assets market participants abide by different standards, which can put consumer data and financial security at risk. Currently government agencies that oversee the banking industry and ensure the industry abides by strict financial soundness and security standards – agencies like the Federal Reserve, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. – are evaluating banks’ involvement in digital assets on a case-by-case basis. Evaluating on a case-by-case basis means many banks are slow to become involved in digital assets. Meanwhile non-bank companies are able to jump into the market with little-to-no regulation or standards by which to abide, potentially leaving consumers and the market open to greater risk and fraud.
What can be done?
Congress and regulators have a place here to ensure the digital asset marketplace operates in a safe and responsible manner, minimizing potential for consumer harm. To do so, they should apply a principle of “same activity, same risk, same regulation” to digital asset activities. Doing so would ensure consumers are equally protected regardless of whether they access digital assets through a bank or a non-bank entity.
Additionally, congress and the government agencies that regulate banking should clarify that banks are permitted to engage in the digital asset marketplace, provided they are operating in a safe and sound manner.