The continued growth of new financial products related to crypto-assets and of trading platforms offering them has the potential to raise financial stability concerns and increase risks that banks face, according to the Basel Committee on Banking Supervision.
Crypto-assets do not reliably provide the standard functions of money, and they are neither legal tender nor backed by any government or public authority. As such, it is unsafe to rely on them as a medium of exchange or store of value, the committee said in a March 13 statement.
Although banks have "very limited" direct exposures to crypto-assets, the committee warned that such assets still pose many risks for banks, including fraud, cyber, money laundering and terrorist financing risks. Given these risks, banks that provide services related to these highly volatile assets are expected to conduct due diligence and improve their risk management and disclosure processes to minimize risk, the committee added.
The committee said it is coordinating with other global standard-setting bodies and the Financial Stability Board regarding the prudential treatment of exposures to cypto-assets.
The Basel Committee on Banking Supervision operates as a global supervisory standard setting committee under the Bank for International Settlements.