U.S. regulators issued their first ever joint warning to banks over the risks associated with the cryptocurrency market, January 2.

BBC News reports 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 U.S. 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 organizations.

The regulators said issuing or holding crypto tokens, which are stored on public, decentralized 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. "It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system," it added.