The U.S. Comptroller General has called on the Federal Deposit Insurance Corporation to coordinate more closely with other federal agencies on risks that may arise from blockchain technology. In the agency’s letter dated June 8 and made public on Monday, it was stated that this recommendation was first conveyed to the regulator among the priority recommendations in May last year.
Blockchain risks were included in the high risk list
The US Court of Auditors evaluated blockchain technology as one of the topics under its “High Risk List”. According to the institution, regulators have difficulty in supervising blockchain-based financial products and there are gaps in the management of the risks these products may pose to the US markets. As an independent agency that audits and investigates on behalf of Congress, the U.S. Comptroller General monitors the practices of federal agencies.
Mini-dictionary: The High Risk List is the U.S. Comptroller’s official monitoring framework that collects areas in the federal government where it sees significant vulnerability, cost, or oversight risk. The topics included in this list point to the need for inter-institutional coordination and tighter control.
In the letter, it was stated that the review conducted in 2023 found that financial regulators did not have a continuous coordination mechanism to address blockchain risks. It was noted that in the same period, financial products and services connected to blockchain grew significantly, therefore the dispersed control structure became more visible.
The U.S. Comptroller General emphasized that establishing his proposed mechanism would help the FDIC and other regulators jointly identify risks and develop and implement a timely regulatory response.
FDIC’s role and stablecoin oversight
Within the scope of the GENIUS Act referenced in the news, it is the main regulatory institution for stablecoin issuers operating as subsidiaries of banks under FDIC supervision. Meanwhile, lawmakers in the Senate are working on a new bill that would determine how the broader cryptocurrency market will be overseen by federal agencies.
In this context, the US Comptroller General requested that the FDIC strengthen information sharing and joint risk assessment with other regulators, rather than a narrow oversight approach focusing only on certain institutions. The letter points out that blockchain-based products are now coming into greater contact with the banking system.
Staff rotation proposal in bank audit
The U.S. Comptroller General also recommended rotating case managers and audit staff assigned to banks. In its assessment in 2024, the institution stated that the FDIC does not require the regular transition of auditors to different banks, which could undermine independence and affect supervision results.
Depending on the institution, the obligation to rotate can reduce threats to independence in auditing and ensure a smoother functioning of the oversight process.
The letter stated that the bankruptcy of multiple banks linked to the cryptocurrency and technology sector in 2023 raises questions about whether supervisory authorities have taken sufficient action to ensure that banks resolve surveillance alerts in a timely manner.
2023 bank bankruptcies are on the agenda again
Silicon Valley Bank, Silvergate Bank and Signature Bank were among the institutions significantly linked to the cryptocurrency industry. These three banks collapsed in less than a week in March 2023, following the FTX bankruptcy, and the developments led to a sharp decline in the cryptocurrency markets.
The latest warning from the US Court of Auditors has brought to the fore the debate on both how blockchain-related financial risks are monitored at the corporate level and the lack of independence and coordination in banking supervision.
