Basel conveys crypto concerns
13 March 2019 Basel
Image: Shutterstock
The continued growth of crypto-asset trading platforms and new financial products related to crypto-assets has the potential to raise financial stability concerns and increase risks faced by banks, according to the Basel Committee.
Accordingly, the Basel Committee is setting out its prudential expectations related to banks’ exposures to crypto-assets and related services, for jurisdictions that do not prohibit such exposures and services.
The committee noted that crypto-assets have exhibited a high degree of volatility and are considered an immature asset class given the lack of standardisation and constant evolution.
Additionally, while crypto-assets are at times referred to as ”crypto-currencies”, the committee is of the view that such assets do not reliably provide the standard functions of money and are unsafe to rely on as a medium of exchange or store of value.
It was explained by the committee that crypto assets present a number of risks for banks, including: liquidity risk, credit risk, market risk, operational risk, money laundering and terrorist financing risk, and legal and reputation risks.
The committee expects that if a bank is authorised and decides to acquire crypto-asset exposures or provide related services, several factors should be adopted at a minimum.
Some of these factors include due diligence, governance and risk management, disclosure and supervisory dialogue.
The committee highlighted that they continue to monitor developments in crypto-assets, including banks’ direct and indirect exposures to such assets.
They added: “The committee will in due course clarify the prudential treatment of such exposures to appropriately reflect the high degree of risk of crypto-assets. It is coordinating its work with other global standard setting bodies and the Financial Stability Board.”
Accordingly, the Basel Committee is setting out its prudential expectations related to banks’ exposures to crypto-assets and related services, for jurisdictions that do not prohibit such exposures and services.
The committee noted that crypto-assets have exhibited a high degree of volatility and are considered an immature asset class given the lack of standardisation and constant evolution.
Additionally, while crypto-assets are at times referred to as ”crypto-currencies”, the committee is of the view that such assets do not reliably provide the standard functions of money and are unsafe to rely on as a medium of exchange or store of value.
It was explained by the committee that crypto assets present a number of risks for banks, including: liquidity risk, credit risk, market risk, operational risk, money laundering and terrorist financing risk, and legal and reputation risks.
The committee expects that if a bank is authorised and decides to acquire crypto-asset exposures or provide related services, several factors should be adopted at a minimum.
Some of these factors include due diligence, governance and risk management, disclosure and supervisory dialogue.
The committee highlighted that they continue to monitor developments in crypto-assets, including banks’ direct and indirect exposures to such assets.
They added: “The committee will in due course clarify the prudential treatment of such exposures to appropriately reflect the high degree of risk of crypto-assets. It is coordinating its work with other global standard setting bodies and the Financial Stability Board.”
← Previous industry article
Iceland’s Government Debt Management to sign treasury securities agreements
Iceland’s Government Debt Management to sign treasury securities agreements
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
