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Basel Committee Guidelines For Banks Entering Cryptocurrency Market

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The Basel Committee, a group of regulators under the Bank for International Settlements (BIS), has laid out a set of guidelines for banks to adopt better risk management and disclosure before entering the cryptocurrency market.

While outlining the threats posed by crypto assets in terms of financial stability, the committee said it expects banks that are going to have direct exposure to the crypto industry to be prudent in their approach.

Basel Committee was established in 1974 to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide.

The regulatory body made it clear that crypto-currencies do not reliably provide the standard functions of money and are unsafe to rely on as a medium of exchange or store of value.

Listing a number of potential risks, the Committee warned that if a bank decides to acquire crypto-assets or provide related services, they should adopt due diligence, governance and risk management, disclosure and supervisory dialogue.

The global banking watchdog urged banks to report risks from direct or indirect exposure to cryptocurrencies in the bank's internal capital and liquidity adequacy assessment processes. T

Banks were advised to ensure that they have the relevant and requisite technical expertise to adequately assess the risks stemming from crypto-assets.

"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 Basel Committee said.

In due course, the Committee expects to will clarify the prudential treatment of such exposures to appropriately reflect the high degree of risk of crypto-assets. It is coordinating the work with other global standard setting bodies and the Financial Stability Board.

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