The Basel Committee on Banking Supervision (BCBS) has told banks that the growth of trading platforms and new financial products related to crypto-assets have the potential to raise financial stability concerns and increase risks.
The global standard setter, which has 45 members comprising central banks and bank supervisors from 28 jurisdictions, issued the warning in a guidance to banks considering crypto-asset services or exposures.
“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,” said BCBS in a statement.
“Crypto-assets have exhibited a high degree of volatility and are considered an immature asset class given the lack of standardisation and constant evolution. They present a number of risks for banks, including liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering and terrorist financing risk; and legal and reputation risks.”
Following its analysis, the BCBS said it expects banks to do their due diligence before acquiring exposures to crypto-assets or providing related services, and publically disclose if they decide to do so.
The Committee, supported by the Bank for International Settlements, added that banks should also adopt governance and risk management frameworks, along with supervisory dialogue.