If you keep an eye on international business and finance news, you might have heard about Bank for International Settlements, or BIS, a few times. It’s a club of world’s central bankers that lays out the best practices and standards for all major banks in the world, thus “fostering international international monetary and financial cooperation” in its own words. However, very few people know that this institution is one of the major detractors of cryptocurrencies, and one of the biggest institutions concerned with this decentralization revolution. The concerns of BIS are so high that last year its Chief had asked young crypto miners to “stop trying to create money”. However, now it turns out that a committee under this same bank has laid out guidelines for banks which are directly entering the crypto space.
That’s right. After realizing that the institutions regulated by it are more interested in cryptocurrencies BIS has decided to put some checks and balances in place before it’s too late. Therefore, the Basel Committee under its guidance has laid out some guidelines and standard procedures for banking institutions which have direct exposure to crypto space. The guidelines collectively call for better risk management and disclosure policies from such institutions. A statement published by the committee in this regard says:
“Before acquiring exposures to crypto assets or providing related services, a bank should conduct comprehensive analyses of the risks. 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 domestic laws and regulations.”
The statement still goes on to suggest that cryptocurrencies pose a threat to global financial stability, despite the exposure of banks to crypto assets being a pittance of their entire asset pool. The statement says:
“Crypto assets are not legal tender, and are not backed by any government or public authority. They present a number of risks for banks, including liquidity risk … operational risk (including fraud and cyber risks); money laundering and terrorist financing risk.”
Towards the end Basel Committee’s statement also revealed that it’s also working with other global standard establishment bodies and Financial Stability Board (FSB) to clarify the prudential treatment of such exposures so the high degree of risk involved in crypto assets may be reflected properly. Notably, FSB has not been as concerned about cryptocurrencies as BIS. Perhaps that’s what might have irked BIS to draft these new standards!