Banks involved in the field of cryptocurrencies will have rules to follow, and the Basel Committee will develop guidelines

Basel Committee: A permanent supervisory body established in February 1975 under the Bank for International Settlements, which is a senior representative of banking regulators, as well as Belgium, Germany, Canada, Japan, France, Italy, Luxembourg, the Netherlands, Sweden, Switzerland. The central bank of the United Kingdom and the United States, whose goal is to increase understanding of key regulatory issues and improve the quality of global banking regulation.

According to reported on March 14, the Basel Committee has developed guidelines for banks planning to enter the cryptocurrency market. The committee, while outlining the threat that crypto assets may pose to financial stability, said it expects banks that will be directly involved in the cryptocurrency industry to be cautious. The report recommends that, as a minimum requirement, banks should improve their risk management and disclosure procedures to reduce risk.

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The Basel Committee recommends banks to “improve risk management and disclosure procedures”

In a statement issued on March 13, the global banking regulator encouraged banks to conduct adequate due diligence to establish a risk management framework that clearly defines fraud prevention, money laundering and terrorist financing. At the same time, banks should report the risks of direct or indirect exposure to cryptocurrencies in the full assessment of internal capital and liquidity. The committee stated:

Banks should conduct a comprehensive analysis of the risks before acquiring cryptocurrency assets or providing related services. Banks shall publicly disclose any significant cryptocurrency risk exposure or related services as one of the contents of regular financial disclosures in accordance with domestic laws and regulations, and stipulate accounting treatment methods for such risk exposures.

Cryptographic currency poses a threat to financial stability

Although some institutions have begun to provide services related to cryptocurrency, such as opening accounts for cryptocurrency businesses and buying and selling digital assets for institutional investors, so far, banks' exposure to cryptocurrencies is still relatively small. At the same time, countries like Brazil have taken the opposite approach, and these countries have closed accounts belonging to cryptocurrency exchanges without notice.

The Basel Committee’s report blamed the continued growth of crypto assets as a threat to bank and financial stability. It claims that cryptocurrency is not a reliable substitute for money, and that cryptocurrency is not safe as a medium of exchange or a means of value storage. The committee said that the volatility of cryptocurrency assets is also high, and banks are also exposed to risks such as fraud and terrorist financing links.

The report details in detail:

Encrypted monetary assets are not legal tenders and there is no support from any government or public agency. They present a range of risks to banks, including liquidity risk, operational risk (including fraud and cyber risks), money laundering and terrorist financing risks.

The committee revealed that it is working with other global standards development agencies and the Financial Stability Board:

“Clarify how to carefully handle such exposures to reasonably reflect the high risk of cryptocurrency assets.”