Basel Committee Gives Warning to Banks Over Numerous Cryptocurrency Risks
International banking authority, the Basel Committee has issued a warning to banks and other global companies. The growth in cryptocurrencies asset like Bitcoin is posing numerous risks to banks.
The Basel committee which is the part of Bank for International Settlement (BIS) has released a statement on Wednesday stating that, the important risks the banks will be facing which were listed by a Swizz based think tank includes credit and market risks, money laundering risk, liquidity risk, terrorist financing risk, operational risk, and legal and reputational risks.
However, as of the now, the banks have a very limited direct exposure to cryptocurrencies and institutions. The banks should boost the risk management and disclosure process to reduce the risk. They have a very low level of threat within important players, the Basel Committee warned.
Crypto assets are not a reliable alternative for money, and they cannot be trusted on as a medium of exchange or to store value, the global banking watchdog mentioned in a statement on Wednesday.
Crypto assets are highly unstable and will expose banks to risks. The bank should have a clear and robust risk management framework so as to handle the high-level risks imposed by cryptocurrencies.
The improved risk management framework of the bank should be entirely integrated within bank’s risks management processes and should even include risks related to anti-money laundering (AML), evasion of sanctions and combating the financing of terrorism (CFT), the committee mentioned.
The supervisory committee should be educated of planned cryptocurrency exposure or actual, also should assure the institutions that risks have been completely reduced and evaluated.
The committee has said that they are closely working with various global standard-setting bodies and the Financial Stability Board (FSB) to reach to an opinion on the prudential treatment of banks risks related to crypto assets in order to consider the risks properly.
In the month of June 2018, BIS in its Annual Economic Report announced that it’s tough to see if crypto assets can solve any particular problems related to economic. The transactions are slow and expensive, likely to block and might not rise as per the demand, the BIS mentioned during that time.
Some of the important views were expressed by the Basel committee towards crypto assets and highlighted that they are not recognized as legal tenders in the world and they certainly cannot perform operations of money.
As compared to the global financial system the crypto asset industry is relatively small in size and the banks should be very much alert when offering services to crypto related businesses.