The Basel Committee on Banking Supervision ("BCBS") issued recommendations to address banking risks associated with crypto assets.
According to the BCBS, as crypto assets are an "immature asset class" with a "high degree of volatility," they raise significant risks for banks, including "liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering and terrorist financing risk; and legal and reputation risks." The BCBS recommends that banks take the following steps to address these risks:
- perform appropriate due diligence to assess risks prior to conducting activities involving crypto assets;
- adopt robust, senior management-approved risk management and governance procedures for crypto-related activities, including anti-money laundering and capital adequacy oversight;
- disclose any material exposures arising from the bank's crypto-related activities in its financial disclosures; and
- inform the bank's supervisory authority of proposed crypto-related activities, and provide assurance that the "permissibility of the activity," risks associated with exposure and services, and how risks will be addressed has been fully assessed by the bank.
Commentary / Mark Highman
While the BCBS recommendations are intended for banks, they provide useful guidance for other market participants considering conducting activities in crypto assets. Such guidance includes assessing the risks of the proposed activities, adopting appropriate policies and procedures to address those risks and complying with relevant regulatory requirements, obtaining any required approvals from the firm's regulators, and providing any required disclosures of financial exposures generated by the firm's crypto-related activities as detailed in the firm's financial reports.
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