Cryptocurrencies could pose a risk to financial stability and increase the number of risks faced by banks, according to the Bank for International Settlements (BIS).

A statement issued by the BIS’ Basel Committee, which develops regulatory standards for central banks around the world, said that the increasing in bank exposure to the spread of crypto asset trading platforms and crypto currencies such as Bitcoin is heightening the level of risk for financial institutions.

The statement read: “While the crypto-asset market remains small relative to that of the global financial system, and banks currently have very limited direct exposures, the Basel Committee is of the view that 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.”

The committee set out a number of criteria that banks should meet before they acquire crypto assets. These include: requirements for due diligence and risk analysis, governance and risk management frameworks, updated financial disclosure rules and dialogue with supervisory bodies and regulators before exposure to ensure compliance.

“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,” the statement said.

“Crypto-assets have exhibited a high degree of volatility and are considered an immature asset class given the lack of standardization and constant evolution. They 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 statement noted.

Last week, the Financial Conduct Authority, UK’s banking regulator, published research into UK consumer attitudes to cryptoassets - such as Bitcoin or Ether – adding its view on concerns over potential harms related to the market in cryptocurrencies, including the fact that many consumers may not fully understand what they are purchasing.

In January the banking watchdog the European Banking authority (EBA) has said regulation may be needed to ensure a Europe-wide approach to regulation of cryptocurrencies and digital assets.

Share Story: