US regulators have issued their first ever joint warning to banks over the risks associated with the cryptocurrency market.
The watchdogs told financial institutions to be wary of potential fraud, legal uncertainty and misleading disclosures by digital asset firms.
Banks were also cautioned over the “contagion risk” from the sector.
It comes just two months after the collapse of trading platform FTX sent shockwaves through the crypto industry.
In the joint statement, the US Federal Reserve, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency said they were closely monitoring the crypto activities of banking organisations.
“The events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector,” the statement said.
The regulators also said that issuing or holding crypto tokens, which are stored on public, decentralised networks was “highly likely to be inconsistent with safe and sound banking practices”.
Banks were also encouraged to take steps to avoid problems in the digital asset market spreading to the wider financial system.