Bank for International Settlements warns central banks over risk posed by cryptocurrency exposure

The Bank for International Settlements (BIS) has warned banks that cryptocurrencies could pose a risk to financial stability.

The BIS Basel Committee, which sets regulatory standards for central banks, said the growth of crypto asset trading platforms and new financial products could increase the risks faced by lenders.

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Banks that acquire crypto assets must conduct thorough due diligence, strengthen governance and risk management, publicly disclose any exposure and inform its supervisory authority of any actual or planned crypto-asset connection, the committee guidance said. 

“The past few years have seen a growth in crypto-assets,” the committee said.

“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 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.”

It comes after International Monetary Fund managing director Christine Lagarde mooted a state-backed digital currency, and said central banks in Canada, China Sweden and Uruguay are considering how to use cryptocurrencies.

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“This is not science fiction," Lagarde said in November last year. "They are embracing change and new thinking – as indeed is the IMF.”

“I believe we should consider the possibility to issue digital currency. There may be a role for the state to supply money to the digital economy.”