Banks Face Multiple Risks on Permissionless Blockchains, BIS Report Finds

According to CoinDesk, banks transacting on permissionless blockchains encounter numerous risks, including settlement finality, as highlighted in a working paper by the Bank for International Settlements (BIS). The paper identifies several risks such as money laundering, terrorism financing, operations and security, governance, legal issues, and compliance challenges. These risks are exacerbated by the reliance on unknown third parties, making it difficult for banks to conduct due diligence and oversight. The BIS paper emphasizes the need for new risk management strategies and safeguards, noting that current practices are still in various stages of development and have not been tested under stress conditions. The Basel Committee on Banking Supervision, part of the BIS and the primary global standard setter for prudential banks, also pointed out that banks are exposed to political uncertainties. New legislation could potentially alter validator behavior, making blockchains operationally unstable. For instance, a ban could reduce the computing power or staked native tokens available to secure the blockchain, temporarily increasing the risk of a 51% attack, where a coordinated effort controls more than 50% of the validation nodes. The paper also mentions that technology to address some of these risks, particularly privacy, is being developed. Zero-knowledge proofs are cited as a potential solution to enhance privacy. Last month, the Basel Committee approved a disclosure framework for banks' exposure to crypto assets, which must be implemented by the start of 2026.