Global banking regulators under the aegis Basel Committee of central banks, have set out a minimum set of standards for financial institutions to adhere to when dealing with crypto assets.

While the crypto asset market remains small relative to that of the global financial system and banks, currently have very limited direct exposures. The Basel Committee of central banks believes that the continued growth of crypto asset trading platforms and new financial products has the potential to “raise financial stability concerns and increase risks faced by banks”.

The Committee reeled off a long list of risks facing financial institutions dabbling in crypto assets, 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.

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The regulatory body recommends that before acquiring exposures to crypto assets or providing related services, a bank should conduct comprehensive analysis of the risks noted above and have in place a clear and robust risk management framework that is appropriate for the size of its crypto asset exposures and related services.

Furthermore, an assessment of the risks 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.

The Committee is also demanding full disclosure of any material crypto asset exposures and ongoing dialogue with supervisory authorities of actual and planned crypto asset exposure or activity.