Banks that conduct transactions on blockchains without permission face multiple risks, including the finality of settlement, the Bank for International Settlements said in a working paper.
The newspaper also said technology is being developed to address some of the risks, particularly around privacy. naming zero-knowledge proofs as a possible solution.
Banks that conduct transactions on blockchains without permission face multiple risks, including money laundering and terrorist financing, the Basel Committee on Banking Supervision concluded in a new article.
The committee is part of the Bank for International Settlements (BIS), the main global standard setter for prudential banks.
Other risks include operations and security, governance, legal matters, settlement finality and compliance, the paper said.
“Certain risks arise from the blockchains’ dependence on unknown third parties, which makes it difficult for banks to conduct due diligence and supervision. These risks require new risk management strategies and safeguards. Current practices to mitigate these risks are still in various stages of development and have not been tested under stress,” the paper said.
Banks are also exposed to political uncertainty, as new legislation could “change the behavior of validators,” making the “blockchains themselves operationally unstable.” For example, a ban could “reduce the amount of computing power or deployment of native tokens available to secure the blockchain, temporarily increasing the risk of an attack by 51%,” involving “a coordinated effort to protect more than 50 % of the blockchain to control’. validation nodes.”
The article also states that technology is being developed to address some of the risks, particularly around privacy, citing ‘zero-knowledge proofs’ as a possible solution.
Last month, the commission approved a disclosure framework for banks’ exposure to cryptocurrencies, to be implemented by early 2026.
Read more: Global Banking Standard Setter Approves Disclosure Framework for Crypto Exposures