Bank's Crypto Service Delayed Post-FTX

MEMORANDUM

TO: Correspondence File

FROM:
XXXXX
Case Manager (CM)

SUBJECT:
XXXXX
Crypto Update

CM, XXXXX requested this meeting to discuss the status of the proposed crypto facilitation service the bank plans to offer in early 2023. President /CEO XXXXX, EVP/CCO XXXXX, EVP/CFO XXXXX, and COO XXXXX met with CM, XXXXX via Microsoft Teams on November 17, 2022.

There has been no progress since our September meeting. Management shared that they met this morning and were uneasy about progressing with the proposed service in light of recent FTX bankruptcy news. CEO XXXXX also noted that the FDIC has not previously inquired about other product rollouts, which gives him pause. I stated that we (FDIC) do not have a position on the topic, but rather want to be a resource for interested institutions. I noted that the FDIC is privy to a number of banks that are going through the due diligence process, which allows us to offer useful perspective. I stated our goals are the same; that we want the bank to operate in a safe, sound, and profitable manner. I added that we can be a resource to help ensure potential risks are identified, effective controls are in place, and consumer disclosures are clear to mitigate and/or reduce risk to the bank.

Management reiterated that this service is not projected to be a “money maker” for the bank; the intent is to help the bank remain competitive with other institutions in its market. COO XXXXX stated that XXXXX application programming interface is still stalled. She plans to reach out to XXXXX in the near-term to see what the bank’s options are as management and the Board are considering aborting the activity all together. Management noted they have approximately XXXXX months to take action, if they elect to pause the project and revisit it at a later time. COO XXXXX stated she will update me after speaking with XXXXX and the Board.

I mentioned that if management elects to move forward with the crypto facilitation service that the FDIC will send a request list prior to implementation, noting that the request list is a good tool to ensure due diligence, risk assessments, policies and procedures, controls, and disclosures are effective.

Based on the lack of progress and management’s plan to, at a minimum, pause the project, KCRO will hold-off on sending a crypto request list.