Banks are transforming their operations to be more innovative, but regulatory activity at the state and federal levels has created strong disincentives for banks to engage with digital assets. As we look to 2023, questions remain about how regulators should expand the regulatory perimeter and provide clarity regarding banks’ engagement with distributed ledger technologies and digital assets. Let’s take a closer look at how this transformation of banking is unfolding.
What Regulatory Frameworks Are in Place?
Regulatory frameworks, guidance, and supervisory capacity related to banking activities are all in place in advance of the finalization of new frameworks and guidance. These existing frameworks have been put into place to maintain the safe and sound operation of banks across the country. This means that bankers must comply with requirements such as capital adequacy, liquidity risk management, credit risk management, financial reporting, AML/CFT compliance programs, KYC/CDD protocols, technology governance programs, etc., which will all help ensure that your bank is compliant with current regulations. Additionally, these regulations help protect investors from potential risks associated with investing in crypto assets or engaging with distributed ledger technologies.
What Challenges Lie Ahead?
As we move forward into 2023, there are still significant challenges ahead for regulators when it comes to providing clarity on how banks should engage with distributed ledger technologies and digital assets more broadly. Banks need clear guidance on what they can do to safely and effectively engage in these activities while still being compliant with all relevant regulatory requirements. Additionally, regulators must ensure that they adequately address known risks associated with investors’ and consumers’ interaction with crypto assets while also providing sufficient oversight to ensure that banks are not engaging in any illegal or unethical activities.
How Can Risk Managers Prepare?
It is important for risk managers to stay up-to-date on any changes or updates that occur in regard to regulations affecting banking transformation initiatives as well as any new guidance or frameworks released by regulators regarding these activities. Risk managers should also be aware of any potential risks posed by engaging in such activities as well as any potential benefits to their bank or customers if they choose to do so. Additionally, risk managers should have an understanding of what their bank’s specific position is on such matters (if applicable) so that they can best advise their colleagues on how best to proceed when engaging in such activities.
The transformation of banking by innovative means has been closely monitored by federal banking regulators who have used existing supervisory capacity to maintain a safe and sound operation of banks across the country while also limiting potential risks posed by investors and consumers interacting with crypto assets or distributed ledger technologies more broadly. As we move forward into 2023 however, many questions remain about how the regulatory perimeter should expand and provide clarity regarding banks’ engagement with these technologies more broadly. It is important for risk managers at all levels to stay informed about these developments so that they can provide advice accordingly regarding compliance measures related to digital asset transactions and other innovative banking practices moving forward into 2023.
Are you interested in learning more about how your team can manage upcoming regulatory change? Check out Connected Risk: Regulatory Change Management and book a free demo with one of our solution experts today!