Basel Committee Warns Banks on Crypto Assets
The Basel Committee has claimed that crypto assets are a threat to global financial stability and advised banks to deal with them at their own risk, according to an official March 13, 2019 report published by the Bank for International Settlements (BIS).
A Bone to Pick
Regardless of all the progress the crypto industry has made in the years since it first came in the scene, it cannot seem to escape the constant criticism being heaped on it. It has been called an evil spawn of the financial crisis by a European Central Bank executive and was called a scam and joke for years by top managers at JP Morgan before they went on to announce a cryptocurrency of their own.
The latest round of criticism comes from the Basel committee, who claim that crypto assets are a threat the global financial stability and to banks. This claim was made despite that fact that there is relatively little explore to crypto assets by banks worldwide.
An Imminent Threat
In the report, the committee says that continuous growth of the crypto trading market and the rise of new crypto-related products will affect the stability of the financial market across the globe.
Not stopping there, the report also claimed that cryptocurrencies are not an adequate store of value or a medium of exchange as they do not perform the traditional functions of money. Another issue brought up is the fact that cryptocurrencies are decentralized and not tied to any world government.
As such, they have been deemed an immature asset class due to their constant evolution and apparent lack of standardization. The committee went on to highlight some risks they believe are associated with crypto such as liquidity risk, credit risk, market risk, operational risk (including fraud and cyber risks), money laundering and terrorist financing risk, and legal and reputation risks.
At Your Own Risk
The report admonished banks to deal in crypto assets at their own risk and should they decide to take the plunge, do so with some guidelines in mind.
Some of these guidelines include due diligence, particularly regarding the risks involved in cryptocurrency such as market volatility. They are also advised to practice effective risk management and well as good governance and disclosure. Finally, banks are advised to inform their supervisory body about any exposure they plan to undertake regarding crypto assets.
The committee ended the report by saying that they would continue to look into crypto and will update their findings in due time.