Basel Committee Wary of Crypto Growth and Impact

Wilfred Michael 

Wilfred Michael

News reporter

14 March 2019,
13:12
Basel Committee Wary of Crypto Growth and Impact

The Basel Committee on Banking Supervision (BCBS) has become the latest to express concerns on how the growth of the cryptocurrency market will affect financial stability and the activity of banking institutions around the world.

In a statement released yesterday, March 13, the Committee mentioned that the size of the crypto market remains relatively small to compare with the global financial system and also banks have less direct exposures.

However, the body also admitted that a continued increase in the number of crypto trading platforms and the creation of crypto-related financial products would potentially lead to a time when the market will disrupt the global financial system and increase risks faced by banks.

As per the statement, such risks would include credit risks, money laundering and terrorist financing, operational risks, legal and reputational risks, etc.

To help banks mitigate these risks to a significant extent, the Committee prescribed that banks adopt the following approach when having any direct involvement with the crypto market:

  • Conducting due diligence and comprehensive analysis to test which of the risks they will get exposed to and to what extent. The Committee recommends that a bank should have “the relevant and requisite technical expertise” for this purpose.

  • Creating a robust risk management framework that is in line with their overall risk management process and allow the relevant senior management team to review it.

  • Disclosing all exposure to cryptocurrencies as part of the regular financial disclosure report and stating the accounting methods for such exposures in line with local regulations.

  • Engaging in dialogue with the local supervisory authority before getting any exposure to the crypto market.

In line with our previous reports, the BCBS statement is not the only insight into the crypto industry submitted by a Banking Committee in recent times. In January, the Bank for International Settlement (BIS) suggested a solution that could prove useful after the last Bitcoin is mined.

 

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