Exposures of financial institutions over crypto assets

Risks stemming from crypto-assets could also be transmitted to the broader financial system through the exposures of financial institutions to crypto-asset markets.

Firms could acquire direct holdings from trading activities or provision of crypto-asset custody services to customers. If these firms are also large providers in traditional financial markets, then primary risks in crypto-asset markets could transmit stress to them and affect their activities in more traditional markets.

Similarly, the financial system could be exposed through the provision of credit and other financial services to crypto-asset trading platforms and wallet providers,26 firms accepting crypto-assets as a means of payment, or to households investing in crypto-assets. This exposure may be particularly important for institutions with small concentrated portfolios, although it seems unlikely that even significant losses at institutions with small portfolios would be on a scale to pose financial stability risks. Investment firms may also face costs relating to reputational damage or legal liability related to investments made in crypto-assets, although unless significant and on a wide-spread basis such costs seem unlikely to implicate financial stability risks.

Furthermore, insurers offering protection against crypto-asset theft, and payments providers interacting with crypto-asset markets, could be exposed to technological and operational risks on the long run.
At this juncture, there is relatively little information on direct investments in crypto-assets and related products including derivatives and funds by banks and mainstream financial institutions.

Regulated financial institutions are investing, trading or market making in crypto-asset markets or their derivatives to varying degrees in a number of FSB member jurisdictions. Although there is currently no indication that banks or other institutions are significantly
exposed to or reliant upon crypto-assets or that regulatory mechanisms may be insufficient to mitigate these risks, it will be important to monitor over time whether crypto-asset holdings and exposures by financial institutions are building up.