US banking regulator urges stronger oversight of crypto risks

Acting Comptroller of the Currency, Michael Hsu, has called for enhanced oversight of cryptocurrency risks as digital assets and fintech increasingly integrate with traditional banking systems.  

Speaking at an international conference hosted by the European Banking Authority and the European Central Bank, Hsu emphasised the need for proactive and vigilant supervision to manage these evolving risks.  

He highlighted the 2022 crypto market collapse, which saw $2 trillion in value lost, to underline the importance of effective supervision.  

"That was not luck," Hsu remarked, referring to the stability of the banking system during that period.  

"It was the result of a long ground game of supervision seeking to ensure that crypto activities banks engaged in were safe, sound, and fair."  

His comments stressed the need for a risk-based approach to supervision in the evolving financial sector.  

Hsu discussed the increasing complexity of the financial landscape due to the growing interaction between banks and nonbank entities, including fintech companies.  

He noted that this interplay raises new concerns and necessitates updated supervisory measures.  

"From the rise and fall of crypto to concerns about the growth of private credit and nonbank mortgage servicing to the recent bankruptcy of fintech middleware firm Synapse, lurking behind these developments have been proliferating questions about the roles, interdependencies, and exposure of banks to nonbanks," Hsu stated.  

He argued that as digital innovation and financial technology expand, supervision must evolve to keep pace with the risks posed by these changes.  

Hsu stressed the importance of maintaining stability through a risk-based supervisory approach that can adapt to rapid developments and unforeseen financial shocks.