A prominent advisory group is urging banks to be more transparent when their customers are exposed to crypto assets – and has warned that digital currencies such as Bitcoin could put financial stability at risk.
In a statement, the Basel Committee on Banking Supervision said financial institutions must perform thorough due diligence of the risks associated with crypto assets before acquiring them, adding that any holdings must be publicly disclosed.
Although the BCBS acknowledged that crypto only has a small market share of the world’s financial system, it said its continued growth and the launch of new crypto-related products could increase the dangers that banks face.
Explaining what these risks could be, the committee claimed that banks could end up becoming more susceptible to fraud and cyberattacks, could inadvertently become a conduit for laundering money or financing terrorism, and may even damage their reputations.
The statement warned:
“While crypto assets are at times referred to as ‘cryptocurrencies,’ 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. Crypto assets are not legal tender, and are not backed by any government or public authority.”
It also cited the “high degree of volatility” seen in the price of crypto assets over recent years, prompting the organization to conclude it is an “immature asset class given the lack of standardization and constant evolution.”
The BCBS describes itself as a committee which aims to strengthen the regulation, supervision and practices of banks around the world – all with a view to ensuring that the global economy enjoys financial stability. However, its guidance does not carry any legal force.
Its tougher approach towards crypto assets is a marked difference from March 2018, when its initial assessment concluded that they posed no risk to global financial stability. It is likely that the BCBS’s view has changed because of how several banks have started to express an interest in the industry, all while asset prices have tumbled and security concerns have been raised surrounding a number of exchanges.