Bitcoin Electronic Crypto Currency Exchange Concept Illustration

Global banking regulators are issuing guidance for banks that dabble in the emerging cryptoasset sector. This move comes amid the ongoing growth and evolution of the cryptoasset market.

In a statement published on Wednesday, March 13, the Switzerland-based Basel Committee on Banking Supervision notes that, while the cryptoasset sector remains small relative to the mainstream financial sector, regulators are concerned that as the sector continues to grow, it raises potential concerns about financial stability overall, along with risks to specific firms.

“Cryptoassets have exhibited a high degree of volatility and are considered an immature asset class given the lack of standardization and constant evolution,” the committee says in its statement.

The regulators also warn about an array of risks that are associated with dealing in the cryptoasset market, including liquidity risk, credit risk, fraud and cyber risk, legal and reputational risk, and money-laundering risk.

Given these concerns, the Basel Committee is setting out minimum expectations for firms that deal in the cryptoasset market, including guidance for due diligence, governance, risk management and disclosure.

Among other measures, the committee calls on banks to implement risk-management processes that reflect the “high risk” nature of cryptoassets, and to publicly disclose any material cryptoasset exposures. Additionally, it recommends that banks report their actual, and planned, cryptoasset exposure to regulators.

The Basel Committee says that it also intends to issue guidance clarifying how cryptoasset exposure should be treated in terms of prudential regulation. That work is being co-ordinated with other global standard setters and the Financial Stability Board, it notes.