BCBS Sets Prudential Expectations for Crypto-Asset Exposures of Banks
BCBS issued a statement setting out its prudential expectations for bank exposures to crypto-assets and related services, for the jurisdictions that do not prohibit such exposures and services. As per the statement, BCBS is of the view that the continued growth of crypto-asset trading platforms and new financial products related to crypto-assets has the potential to raise financial stability concerns and increase risks faced by banks.
BCBS states that crypto-assets are not a legal tender, are not backed by any government or public authority, do not reliably provide the standard functions of money, and are unsafe to rely on as a medium of exchange or store of value. They present a number of 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. BCBS expects that if a bank is authorized and decides to acquire crypto-asset exposures or provide related services, the following should be adopted at a minimum:
- Due diligence. Before acquiring exposures to crypto-assets or providing related services, a bank should conduct comprehensive analyses of the associated risks. The bank should ensure that it has the relevant and requisite technical expertise to adequately assess the risks stemming from crypto-assets.
- Governance and risk management. The bank should have a clear and robust risk management framework that is appropriate for the risks of its crypto-asset exposures and related services. Its relevant senior management functions are expected to be involved in overseeing the risk assessment framework. An assessment of the risks described above related to direct and indirect crypto-asset exposures and other services should be incorporated into the bank's internal capital and liquidity adequacy assessment processes.
- Disclosure. A bank should publicly disclose any material crypto-asset exposures or related services as part of its regular financial disclosures and specify the accounting treatment for such exposures, consistent with the domestic laws and regulations.
- Supervisory dialog. The bank should inform its supervisory authority of actual and planned crypto-asset exposure or activity in a timely manner and provide assurance that it has fully assessed the permissibility of the activity and the risks associated with the intended exposures and services, and how it has mitigated these risks.
BCBS continues to monitor developments in crypto-assets, including banks' direct and indirect exposures to such assets. The Committee will, in due course, clarify the prudential treatment of such exposures to appropriately reflect the high degree of risk of crypto-assets. It is coordinating its work with other global standard-setting bodies and FSB.
Related Link: BCBS Statement
Keywords: International, Banking, Crypto Assets, Regtech, Financial Stability, Disclosures, BCBS
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