Basel Committee Warns Banks Planning to Enter Crypto Market, Issues New Guidelines
On Wednesday, March 13, the Basel Committee of Banking Supervision issued a new warning to banks regarding the risk to global financial stability posed by the growth of cryptocurrencies. On Wednesday, March 13, notes that some of the potential risks to banks include credit and market risks, liquidity, money laundering, operational risks, terror financing risks and repetitional risks.
The Basel Committee has recently laid out guidelines for banks that are willing to enter the crypto market. The committee has asked the traditional banking and financial institutions to maintain prudence in their approach. The committee asks banks to carry out extensive due diligence and reveal their exposure to crypto assets to minimize the risks.
The committee stated: “Before acquiring exposures to crypto assets or providing related services, a bank should conduct comprehensive analyses of the risks. A bank should publicly disclose any material crypto-asset exposures or related services as part of its regular financial disclosures and specify the accounting treatment for such exposures, consistent with domestic laws and regulations”.
Furthermore, it asks banks to have a robust risk management framework to deal with “high degree” of risks posed by digital currencies. The committee also recommends to integrate this risk management framework with the banks’ overall risk management processes that includes financing of terrorism (CFT), anti-money laundering, and evasion of sanctions.
Also, the committee recommends that a detailed assessment of risks needs to be incorporated into the banks’ internal capital and liquidity adequacy assessment processes. The committee states that the bank should regularly inform supervisory bodies regarding the actual or planned cryptocurrency exposure.
The committee also noted that it will work with global regulatory and supervisory bodies such as the Financial Stability Board (FSB) to arrive at a guidance on the “prudential treatment” of banks’ exposure to digital currencies.