Federal watchdog calls on FDIC to improve blockchain oversight coordination
According to the US Government Accountability Office, federal regulators such as the FDIC are missing a "continuous coordination framework for managing blockchain-related risks."
The Federal Deposit Insurance Corporation has been called upon by the US Government Accountability Office to establish better coordination with fellow federal agencies when it comes to managing the risks associated with blockchain technology.
On Monday, the GAO released a June 8 correspondence addressed to FDIC Chairman Travis Hill, revealing that it had initially presented priority recommendations to the regulatory body in May of the previous year, which included tackling risks related to blockchain technology.
According to the GAO, blockchain technology represents a significant concern that warranted placement on its "High Risk List," citing the belief that regulatory bodies have encountered difficulties in overseeing financial products built on blockchain and the potential threats they may present to markets in the United States.
Following the passage of the GENIUS Act last year, the FDIC has been designated as the primary regulatory authority for issuers of stablecoins that operate as subsidiaries under banks within its supervisory jurisdiction. Meanwhile, Senate lawmakers are actively working toward passing legislation that would establish a framework for how federal agencies would regulate the broader cryptocurrency marketplace.
In the correspondence sent to Hill, the GAO indicated that its 2023 findings revealed financial regulatory agencies "lacked an ongoing coordination mechanism for addressing blockchain risks" while during that same period, "blockchain-related financial products and services have grown substantially."
"Establishing such a mechanism, as we recommended, would help FDIC and other regulators collectively identify risks and develop and implement a regulatory response in a timely manner," it added.
Additionally, the GAO recommended that the FDIC implement a rotation system for case managers who are assigned to oversee banks in order to enhance the supervision of the industry.
The agency's 2024 findings showed that the FDIC did not mandate supervisors to rotate their assignments to different banking institutions, which "could compromise their independence and interfere with supervision outcomes," and implementing a rotation requirement "could mitigate threats to independence."
According to the GAO, the collapse of several banks connected to the crypto and technology sectors in 2023 "raised questions" regarding whether the banking regulatory agencies took sufficient action to guarantee that financial institutions "promptly addressed supervisory concerns."
Silicon Valley Bank, Silvergate Bank and Signature Bank, which all had significant exposure to the crypto industry, all collapsed in less than a week in March 2023 in the fallout of the bankruptcy of FTX, which sent crypto markets tumbling.