Florida Banking April 2024

in the country will have to understand blockchains at some level in order to offer products in the future. In 2019, the Bank of International Settlements (BIS) issued one of its first statements on digital assets. As digital assets and Central Bank Digital Currencies (which the BIS notes are different things) become more prevalent, banks will have exposure to these and the BIS comments the following: “…the Committee expects that if a bank is authorised [sic] and decides to acquire crypto-asset exposures or provide related services, the following should be adopted at a minimum: • Due diligence: Before acquiring exposures to crypto-assets or providing related services, a bank should conduct comprehensive analyses of the risks noted above. The bank should ensure that it has the relevant and requisite technical expertise to adequately assess the risks stemming from crypto-assets. • Governance and risk management: The bank should have a clear and robust risk management framework that is appropriate for the risks of its crypto-asset exposures and related services. Given the anonymity and limited regulatory oversight of many crypto-assets, a bank's risk management framework for crypto-assets should be fully integrated into the overall risk management processes… • Disclosure: 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. • Supervisory dialogue: The bank should inform its supervisory authority of actual and planned crypto-asset exposure or activity in a timely manner and provide assurance that it has fully assessed the permissibility of the activity and the risks associated with the intended exposures and services, and how it has mitigated these risks. 1 ” Clearly, these four instructions are sound guidance from the BIS. In 2022 the BIS completed a survey of 85 central banks around the world. The survey suggests that by 2030 there could be 15 Central Bank digital currencies in circulation 2 . In the U.S. the FEDNOW service is a real-time gross settlement system that has been active since July 20, 2023. This is a blockchain based system open to all depository institutions in the United States. Blockchain is here now and is here to stay. For the brief history of crypto, many banks have taken a rather strict stance on the asset class. Some clients have had accounts closed for too much dealing in crypto. Digital asset companies have had difficult times opening bank accounts and keeping them open.

In the bank’s defense, it is wise to remove a client if the bank is unsure of the providence of funds and/or is not familiar with the type or size of transactions being executed by the client. Thus, while banks were within their professional responsibility in these actions, they were losing customers and business as a result. This tide will shift as digital assets become more widespread and banks will have to educate their staff about how to have intelligent discussions about digital assets. This is the key to the first step in any financial institution when they think about their digital asset strategy. How do I educate my staff? This becomes a much more difficult task as there is so much untrustworthy information on the internet at large. Few professionals understand and have deep knowledge in the space. Governance, disclosure and supervision are tasks that the bank can handle once they have established the institutional knowledge to have robust conversations in house. Building that knowledge base should be the highest priority and the time has arrived. Without a sound knowledge base, the bank will not be able to build a strong digital asset strategy. Without a strategy, the coming decade will be much more difficult to manage. Attempting to play catch up when you don’t even understand the rules, is a losing position. It is imperative now that banks begin to invest in the education of staff and perhaps younger staff who are enthusiastic about being a part of the coming digital asset revolution. The technology that is the blockchain is set to revolutionize the world in much the same way the internet touched every facet of our lives. Blockchains will become ubiquitous and a more important part of our financial lives as everything is tokenized someday. Your car, your house and someday your vote will be on a blockchain. While that someday has not come yet, the days of assuming that crypto is a fad that will soon fade are gone. We are at the pivotal point where educating oneself about digital assets is no longer an option; it is a necessity in order to compete over the coming decade. This is your sign and your call to action. Continue to learn or suffer the consequences of the world racing past at the speed of blockchain. David Spencer CPA is a senior advisor specializing in digital asset taxation and advisory. A graduate of the University of Oregon’s Lundquist college of business, he has spoken internationally and at several universities on the topic. He has numerous certifications in fintech and blockchain from IBM, Harvard Professional Education, and the Global Blockchain Business Council. An avid freediver in his spare time and a self-proclaimed futurist, Spencer is excited about the future he sees ahead.

1.Source: Statement on crypto-assets. (2019, March 13). Bis.org. https://www.bis.org/publ/bcbs_nl21.htm 2.Kosse, A., & Mattei, I. (2023). Making headway -Results of the 2022 BIS survey on central bank digital currencies and crypto. https://www.bis.org/publ/bppdf/bispap136.pdf

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