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Danske Bank remains ‘very cautious’ on crypto

By Andrei Chirileasa

13:17, 18 June 2021

bitcoin and roulette

Danske Bank, the biggest financial group in Denmark, has reaffirmed its cautious position on cryptocurrencies and its advice against investing in such instruments.

The Danish bank recognises that cryptocurrencies represent a significant digital innovation in financial services and that there is a significant global market for cryptocurrencies along with many customers who find cryptocurrencies interesting. It also sees great potentials in the blockchain technology, upon which cryptocurrencies build. As a financial institution, however, Danske Bank remains wary towards cryptocurrencies.

A statement published on its website on 18 June had the following warning:

Reasons to maintain a very cautious approach

  • Trade in cryptocurrencies is not always sufficiently transparent, which may make it difficult for financial institutions to meet their obligations to fight financial crime and money laundering.
  • Trade in cryptocurrencies is only partially regulated by financial regulation and consumers do not always have the consumer protection associated with regulated financial products.
  • Pricing of cryptocurrencies is opaque and highly fluctuating, and investors have limited insight into how the market develops and what drives the price.
  • Transactions with certain cryptocurrencies require very large amounts of computing power that are extremely energy-intensive. This is not in line with Danske Bank's ambition to promote sustainable development together with our customers.

Danske Bank also said it favours the developments under the new EU legislation Regulation of Markets in Cryptoassets (MiCA), which is expected to ensure better regulation of the market for cryptocurrencies and other types of cryptoassets, such as stablecoins.

The bank has said it remains open to review its position as the cryptocurrency market matures and is further regulated.

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Most banks see high risks in cryptoassets

Danske Bank’s position is in line with that of most of the traditional banking institutions, which regard cryptoassets as very risky.

Earlier in June, the Basel Committee on Banking Supervision entered into the debate with a consultative document outlining its proposals for the prudential treatment of cryptoasset exposures.

“The growth of cryptoassets and related services has the potential to raise financial stability concerns and increase risks faced by banks,” the committee said in its report.

Certain cryptoassets have exhibited a high degree of volatility and could present risks for banks as exposures increase. These include liquidity, credit, market, operational, legal, reputation, fraud and cyber risks, along with threats relating to money laundering and terrorist financing.

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